LOCKHART CARIBBEAN CORP, 424B3, 1998-02-10

LOCKHART CARIBBEAN CORP
424B3, 1998-02-10
OPERATORS OF NONRESIDENTIAL BUILDINGS

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Commission File No. 333-35105
Filed Pursuant to Rule 424(b)(3)

LOCKHART CARIBBEAN
CORPORATION
[Lockhart Logo]
------------------
Lockhart Caribbean Corporation is offering Units on a best efforts basis.
No Units will be sold until subscriptions for at least 1,153,846 Units are
received (the "Minimum Offering"). Lockhart may sell up to 2,000,000 Units (the
"Maximum Offering") in this offering. The minimum purchase is 100 Units, and the
initial public offering price is $6.50 per Unit. For factors considered in
determining the initial public offering price, see "{{Plan of Distribution}}".
Each Unit consists of one share of Class A Common Stock and one Warrant. Shares
of Class A Common Stock and the Warrants may be transferred separately after
their issuance. Each Warrant is exercisable for a period of five years beginning
one year from the date of this Prospectus and entitles the holder to purchase
one-tenth of one share of Class A Common Stock for $9.75 per share. No
fractional shares of Class A Common Stock will be issued.

Lockhart is a {{U.S. Virgin Islands}} corporation engaged primarily in the
business of owning, acquiring, renovating, developing and managing shopping
centers and other commercial real estate in the Virgin Islands and is taking the
first step in diversifying its real estate activities with the pending
acquisition of an insurance premium financing company.

Lockhart has two classes of common stock, Class A Common Stock and Class B
Common Stock. Each share of Class A Common Stock entitles its holder to one
vote, whereas each share of Class B Common Stock entitles its holder to ten
votes. If the Maximum Offering is sold, the Class B Stockholders will
beneficially own shares having approximately 97.7% of the outstanding voting
power of the Common Stock. As a result, these stockholders will have the
collective ability to elect the Company's directors and to determine the outcome
of corporate actions requiring stockholder approval. Lockhart's executive
officers and directors will beneficially own shares of Class B Common Stock
having approximately 42.6% of the outstanding voting power of the Common Stock.

See "{{Risk Factors}}" beginning on page 12 for certain material risks
relevant to an investment in the Units, including:
o Historical consolidated net losses.
o Concentration of properties in the U.S. Virgin Islands.
o No limit on indebtedness in Lockhart organizational documents.
o Real estate investment and property management risks, such as the need to
renew leases or relet space upon lease expiration.
o Certain losses may exceed insurance coverage.
o There is currently no public market for the Class A Common Stock.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON
OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL
------------------
<TABLE>
<CAPTION>
Initial Public Estimated Offering Proceeds to
Offering Price Expenses Company
-------------- ------------------ -----------
<S> <C> <C> <C>
Per Unit..................... $6.50 -- --
Total Minimum................ $7,500,000 $974,000 $ 6,526,000
Total Maximum................ $13,000,000 $974,000 $12,026,000
</TABLE>
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The date of this Prospectus is February 4, 1998.
<PAGE>

(Cover Page Continued From Previous Page)

ACS Financial & Securities Services has agreed to collect subscriptions and
forward such subscriptions to the Company for processing. See "{{Plan of
Distribution}}". All subscription funds for Units will be deposited in an
interest-bearing escrow account with The Chase Manhattan Bank ("Chase"), until
subscription funds for the Units total $7,500,000, representing the Minimum
Offering. Subscription funds will be released by Chase to Lockhart to be used
for company purposes within approximately 30 days after the Minimum Offering is
reached. No Units will be sold unless subscriptions for the Minimum Offering
($7,500,000) have been obtained within one year after the initial date of this
Prospectus. In no event will subscription funds be held in escrow for longer
than one year, and any refunds of subscriptions due to the failure of Lockhart
to reach the Minimum Offering shall be returned with interest. This offering
will terminate no later than February 4, 1999.

Notice to Ohio Residents

Any individual subscribing for Units who is a resident of the State of Ohio
must meet one of the following criterion: (i) net worth, exclusive of home, home
furnishings and automobiles, of $150,000; or (ii) net worth, exclusive of home,
home furnishings and automobiles, of $45,000 and $45,000 of annual income.

THIS OFFERING IS NOT CURRENTLY OPEN TO RESIDENTS OF ALABAMA, ALASKA,
ARIZONA, ARKANSAS, FLORIDA, IDAHO, ILLINOIS, IOWA, KANSAS, KENTUCKY, LOUISIANA,
MAINE, MARYLAND, MASSACHUSETTS, MICHIGAN, MINNESOTA, MISSISSIPPI, MISSOURI,
MONTANA, NEBRASKA, NEW HAMPSHIRE, NEW JERSEY, NORTH CAROLINA, NORTH DAKOTA,
OKLAHOMA, OREGON, PENNSYLVANIA, SOUTH DAKOTA, TENNESSEE, TEXAS, UTAH, VERMONT,
WASHINGTON, WEST VIRGINIA, WISCONSIN AND WYOMING OR OF ANY COUNTRY OTHER THAN
THE UNITED STATES AND ITS TERRITORIES. SUBSCRIPTIONS RECEIVED BY RESIDENTS OF
ANY SUCH STATE OR FOREIGN COUNTRY WILL BE PROMPTLY RETURNED.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY REPRESENTATIONS TO
THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE AMOUNT OR CERTAINTY
OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE WHICH MAY FLOW FROM AN
INVESTMENT IN THE UNITS, THE CLASS A COMMON STOCK OR THE WARRENTS IS PROHIBITED.

Through and including May 5, 1998, all dealers effecting transactions in
the Units, the Class A Common Stock or the Warrents, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
------------------

Lockhart intends to furnish its stockholders with annual reports containing
audited financial statements.

<PAGE>

TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY.......................................................... 5
The Company.............................................................. 5
Risk Factors............................................................. 5
Properties............................................................... 6
Business and Growth Strategies........................................... 7
Ownership................................................................ 8
The Offering............................................................. 8
SUMMARY SELECTED FINANCIAL INFORMATION...................................... 10
RISK FACTORS................................................................ 12
History of Losses; Uncertainty of Profitability.......................... 13
Concentration of Properties in the U.S. Virgin Islands................... 13
Inability to Repay or Refinance Indebtedness at Maturity................. 13
No Limitation on Debt.................................................... 13
Need for Additional Financing............................................ 13
Economic Performance and Value of Properties Dependent on Many Factors... 14
Dependence on Rental Income from Real Property........................... 14
Impact of Competition on Occupancy Levels and Rents Charged.............. 14
Risk of Bankruptcy of Major Tenants...................................... 14
Illiquidity of Real Estate Investments................................... 14
Risk of Renovation and Development Activities............................ 15
Risk of Acquisitions..................................................... 15
Potential Risks of Investment Outside the United States and
its Territories ..................................................... 15
Potential Increases in Certain Taxes and Regulatory Compliance........... 15
Insurance................................................................ 16
Environmental Risks...................................................... 16
Concentration of Control; Anti-Takeover Effect of Certain
Charter Provisions................................................... 16
Shares Eligible for Future Sale.......................................... 17
Absence of Distribution to Holders of Class A Common Stock .............. 18
No Public Market; Possible Volatility of Stock Price..................... 18
Immediate Dilution....................................................... 18
USE OF PROCEEDS............................................................. 19
DISTRIBUTION POLICY......................................................... 20
DILUTION.................................................................... 21
SELECTED FINANCIAL INFORMATION.............................................. 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................................... 25
Overview ................................................................ 25
Results of Operations.................................................... 26
Cash Flow................................................................ 28
Liquidity and Capital Resources.......................................... 29
Recent Developments...................................................... 30
Forward Looking Statements............................................... 31
New Accounting Pronouncements............................................ 31
BUSINESS.................................................................... 32
Overview ................................................................ 32
Organizational Structure................................................. 33
The U.S. Virgin Islands ................................................. 34
Properties............................................................... 34
Competition.............................................................. 46
Acquisition of PFC....................................................... 46
Business and Growth Strategies........................................... 47
Investing and Financing Policies......................................... 50
3

<PAGE>

Environmental Considerations............................................. 51
Employees................................................................ 52
Litigation............................................................... 52
MANAGEMENT.................................................................. 53
Executive Officers and Directors......................................... 53
Committees of the Board of Directors..................................... 56
Director Compensation.................................................... 57
Executive Compensation................................................... 57
Long-Term Incentive Plan................................................. 58
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................. 61
PRINCIPAL STOCKHOLDERS...................................................... 62
PLAN OF DISTRIBUTION........................................................ 63
DESCRIPTION OF CAPITAL STOCK................................................ 65
General ................................................................ 65
Common Stock............................................................. 65
Preferred Stock.......................................................... 67
Certain Anti-Takeover Provisions......................................... 67
Summary of the Reinvestment Plan......................................... 68
DESCRIPTION OF WARRANTS..................................................... 69
FEDERAL INCOME TAX CONSEQUENCES............................................. 70
Taxation of the Company.................................................. 70
Taxation of United States Stockholders (other than
U.S. Virgin Island Stockholders)..................................... 71
Taxation of U.S. Virgin Island Stockholders.............................. 73
SHARES ELIGIBLE FOR FUTURE SALE............................................. 74
SUPPLEMENTAL SALES MATERIAL................................................. 75
LEGAL MATTERS............................................................... 75
EXPERTS..................................................................... 75
ADDITIONAL INFORMATION...................................................... 76
INDEX TO FINANCIAL STATEMENTS...............................................F-1
APPENDIX A--SUBSCRIPTION AGREEMENT..........................................A-1

<PAGE>

PROSPECTUS SUMMARY

The Lockhart Companies Incorporated was reorganized in 1993, and it was
recapitalized and renamed Lockhart Caribbean Corporation in August 1997. The
following summary is qualified in its entirety by the more detailed information
and the consolidated financial statements and the notes thereto appearing
elsewhere in this Prospectus.

The Company

Lockhart Caribbean Corporation (together with its direct and indirect
subsidiaries, "Lockhart" or the "Company") is the largest owner of shopping
centers in the U.S. Virgin Islands and is one of the largest owners of
undeveloped land on the island of St. Thomas. Lockhart owns, acquires, operates,
renovates, develops, and manages shopping centers and other commercial real
estate, primarily on the islands of St. Thomas and St. Croix. The Company
currently owns and operates seven shopping centers and is actively planning or
developing {{seven projects}}. Lockhart also owns and operates {{commercial
parks}} in which it builds the infrastructure for commercial development (roads
and utilities) and leases designated parcels under long-term ground leases. In
addition, the Company owns an aggregate of approximately {{415 acres of
undeveloped real estate}} zoned for residential development of varying
densities.

Capitalizing on the collective experience of the {{Company's senior
management}} in the financial services industry, Lockhart intends to diversify
its operations to provide select financial services. As a first step, the
Company is acquiring {{Premium Finance Company of the V.I., Inc.}} ("PFC"). PFC
finances insurance premiums for individuals and businesses in the U.S. Virgin
Islands, the British Virgin Islands, Antigua, Anguilla and Barbuda and recently
received government approval to do business in St. Maarten. Lockhart has agreed
to acquire PFC for $687,500 and will use a portion of the proceeds from this
offering to pay the PFC purchase price. See "{{Use of Proceeds}}".

The Company is a U.S. Virgin Islands corporation. Its principal executive
offices are located at No. 44 Estate Thomas, St. Thomas, U.S. Virgin Islands
00802, and its telephone number is (340) 776- 1900.

Risk Factors

o The Company has experienced consolidated net losses for the nine months
ended September 30, 1997 as well as in three out of the past five fiscal
years, and there can be no assurance that profitability will be achieved in
the future.

o All of the Company's properties are currently located in the U.S. Virgin
Islands and, therefore, the Company's performance will depend on the
economic conditions in the U.S. Virgin Islands.

o The Company's organizational documents do not limit the amount of debt the
Company can incur, and the Company intends to raise additional funds to
finance its growth; however, the Lockhart Board of Directors has a policy
of incurring debt only when a project is expected to generate cash flow
sufficient to service the related debt.

o Lockhart is subject to real estate investment and property management risks
such as: (i) the need to renew leases or relet space upon lease expirations
and, at times, to pay renovation and reletting costs in connection
therewith; (ii) the effect of economic and other conditions on property
cash flows and values; (iii) the ability of tenants to make lease payments;
(iv) the ability of a property to generate revenue sufficient to meet
operating

<PAGE>

expenses, including future debt service; and (v) the illiquidity of real
estate investments, all of which may adversely affect the Company's results
of operations.

o Lockhart intends to continue to acquire, renovate and develop real estate
properties and will be subject to the risks associated with such
activities.

o Certain types of losses, such as those resulting from hurricanes, could
exceed the Company's insurance coverage, which currently includes flood,
windstorm and earthquake coverage for all of the Company's operating
properties.

o The Company may incur environmental liabilities in connection with the
ownership or operation of its properties.

o Shares available for future sale may adversely affect the market price of
the Class A Common Stock.

o The Class A Common Stock is currently not listed or traded on any stock
exchange or other quotation system, and there can be no assurance that a
trading market will develop.

o Purchasers in this offering will experience immediate dilution in the net
tangible book value per share of the shares of Class A Common Stock
purchased in this offering.

Properties

The Company currently owns and operates seven shopping centers and one
commercial park, is actively planning or developing seven projects, has leased
an aggregate of approximately seven acres (including tenants at Sugar Estate
Park) of commercial land to others on the basis of long-term ground leases and
owns approximately 415 acres of undeveloped land zoned for residential
development. The Company also owns No. 44 Estate Thomas, an office building
which the Company currently uses as its principal executive offices. The
following table sets forth certain information for each of the Company's
shopping centers as of September 30, 1997:

Year Built/ Net Rentable Percent
Acquired Square Feet Occupied
-------- ----------- --------
{{Drakes Passage Shopping Mall}} 1920 33,000 89%
{{Fort Mylner Commercial Center}} 1996 10,800 100%
{{Fort Mylner Shopping Center}} 1996 26,200 93%
{{Grand Hotel Court}} 1914 23,900(1) 60%
{{Lockhart Gardens Shopping Center}} 1972 140,198(2) 75%
{{Orange Grove Shopping Center}} 1996 30,600 82%
{{Red Hook Plaza}} 1995 32,145 75%

- ------------------------
(1) Approximately 4,500 square feet are being held vacant in preparation for
renovation as part of Grand Hotel Court - Phase II.
(2) Includes a ground lease for 30,000 square feet, or approximately 0.7 acres.

<PAGE>

The commercial business park, {{Sugar Estate Park}}, consists of an
aggregate of approximately 11.7 acres of land. Approximately 5.7 acres of Sugar
Estate Park are currently ground leased to commercial tenants. The Company
collects lease payments and other tenant expense reimbursements under its ground
leases and will own the buildings constructed on the property upon expiration of
the leases. Lockhart also has two development projects planned for the Park,
Sugar Estate Commercial Centre and Sugar Estate Plaza, which the Company will
operate and manage once these projects are completed.

The following table sets forth certain information for projects actively
being planned or developed by the Company:

Estimated
Estimated Cost Completion Date
-------------- ---------------
{{Sugar Estate Commercial Centre}} $0.9 million 1998
{{Lockhart Gardens Shopping Center-
Garden Mall}} $0.5 million 1998
{{Market Square East - Phase I}} $1.8 million 1998
{{Longford Industrial Park}} $1.3 million 1999
{{Lockhart Gardens Shopping Center-
Phase II}} $5.5 million 1999
{{Grand Hotel Court - Phase II}} $1.4 million 1999
{{Sugar Estate Plaza}} $5.3 million 2001(1)
- -------------------------
(1) Estimated completion date for both Phase I and Phase II development.

Business and Growth Strategies

The Company's primary business objectives are to enhance stockholder value
by maximizing cash flow, and to diversify both geographically and into the
financial services industry. The Company believes it can achieve these
objectives by continuing to implement its business strategies to capitalize on
external growth opportunities and to promote internal growth.

Lockhart intends to grow externally by acquiring additional developed
commercial properties in the U.S. Virgin Islands and in other Caribbean markets,
and by capitalizing on management's experience in the financial services
industry through diversification into that industry. The Company pursues
internal growth by: (i) maintaining and improving occupancy rates through
proactive tenant management and aggressive leasing; (ii) implementing fixed
contractual base rent increases or increases tied to indices; (iii) passing
through to tenants certain reimbursable expense items; (iv) capitalizing on
economies of scale arising from the size of the Company's operating property
portfolio; (v) developing its commercial real estate holdings; and (vi)
selectively developing its residential property inventory.

<PAGE>

Ownership

Lockhart is one of the oldest continuous operators of commercial properties
in the U.S. Virgin Islands. The Company was founded by Alfred H. Lockhart in
1884, and was originally incorporated by his son, Herbert E. Lockhart, in 1936.
Immediately after the offering and assuming the Maximum Offering is sold, the
approximately 34 holders of Class B Common Stock (collectively, the "Class B
Stockholders") will beneficially own shares of Class B Common Stock having
approximately 97.7% of the outstanding voting power of the Company's Common
Stock. Class B Stockholders consist of lineal descendants (and their spouses) of
Alfred H. Lockhart and his son Herbert E. Lockhart, as well as the current
executive officers and a former employee of the Company. If only the Minimum
Offering is sold, Class B Stockholders will have approximately 98.7% of the
outstanding voting power of the Company's Common Stock. Lockhart's executive
officers and directors will collectively own or control approximately 3,739,931
shares of Class B Common Stock, or approximately 42.6% and 42.7% of the
outstanding voting power of Common Stock based on the Maximum Offering and the
Minimum Offering, respectively. See "Risk Factors--Concentration of Control;
Anti-Takeover Effect of Certain Charter Provisions" and "{{Description of
Capital Stock}}".

The Offering

The Company is offering Units, each consisting of one share of its Class A
Common Stock, par value $.01 per share (the "Class A Common Stock"), and one
Warrant. Shares of Class A Common Stock and the Warrants may be transferred
separately after their issuance. Each Warrant is exercisable for a period of
five years beginning one year from the date of this Prospectus and entitles the
holder to purchase one-tenth of one share of Class A Common Stock for $9.75 per
share. The exercise price and the number of the shares of Class A Common Stock
issuable upon exercise of the Warrants is subject to adjustment upon the
occurrence of certain events. No fractional shares of Class A common Stock will
be issued. See "Description of Warrants".

Units offered:
Minimum Offering.................. 1,153,846 Units
Maximum Offering.................. 2,000,000 Units

Common Stock outstanding, assuming Minimum Offering:

Class A Common Stock.............. 1,153,846 shares
Class B Common Stock.............. 8,670,427 shares(1)
----------
Total............ 9,824,273 shares

Common Stock outstanding, assuming Maximum Offering:

Class A Common Stock.............. 2,000,000 shares(2)
Class B Common Stock.............. 8,589,658 shares(1)(3)
----------
Total............ 10,589,658 shares

Voting rights.......... The Class A Common Stock and Class B Common Stock vote
as a single class on all matters requiring the approval
of the Company's stockholders, except as otherwise
required by law, with each share of Class A Common Stock
entitling its holder to one vote and each share of Class
B Common Stock entitling its holder to ten votes.

<PAGE>

Distributions.......... Initially, no cash distributions will be paid to holders
of Class A Common Stock; however, the Board of Directors
of the Company has a policy of declaring annual cash
distributions to holders of Class B Common Stock. See
"Distribution Policy". As long as cash distributions are
not being paid on Class A Common Stock, the holders of
Class A Common Stock shall be entitled to preferential
rights in the event of liquidation, dissolution or
winding up of the Company, and the amount of
distributions payable to holders of Class B Common Stock
is limited. See "{{Description of Capital Stock}}".

Use of proceeds........ The Company intends to use the net proceeds from the
Minimum Offering to pay the purchase price for PFC, to
repay certain outstanding indebtedness and to partially
fund its development projects. If the Maximum Offering
is sold, approximately $525,000 of the last one million
dollars of additional net proceeds will be used to
redeem shares from certain of the Company's current
stockholders and the balance will be used for other
general corporate purposes. See "Use of Proceeds".

- ---------------
(1) Shares of Class B Common Stock are convertible at any time into Class A
Common Stock on a one-for-one basis and convert automatically into Class A
Common Stock upon a transfer to anyone other than a Class B Stockholder or
certain permitted transferees. See "{{Description of Capital Stock}}".

(2) If the Minimum Offering is sold, the Company intends to apply for listing
of the Class A Common Stock on the Nasdaq SmallCap Market. However, there
can be no assurance that the Company will be accepted for listing if it
applies. See "{{Plan of Distribution}}". The Company does not intend to
apply for listing of the Warrants.

(3) If the Maximum Offering is sold, the Company intends to use a portion of
the last one million dollars realized from the sale to repurchase
approximately 80,769 shares of Class B Common Stock from certain Class B
Stockholders. See "Use of Proceeds" and "{{Certain Relationships and
Related Transactions}}".

<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
LOCKHART CARIBBEAN CORPORATION

The following table sets forth selected financial and operating information
for the Company as of and for the years ended December 31, 1996, 1995, 1994,
1993 and 1992. The information for 1996, 1995 and 1994 is derived from and
should be read in conjunction with the audited financial statements of the
Company, which have been audited by Ernst & Young, LLP, independent public
accountants, whose report thereon appears elsewhere herein; the information for
1993 is derived from the audited financial statements of the Company, which have
been audited by Ernst & Young, LLP, although their report thereon is not
included herein; the information for 1992 is derived from audited financial
statements of the Company, which were audited by other independent public
accountants and were restated by management to reflect the reorganization of the
Company in 1993. In addition, the following table sets forth selected financial
and operating information for the Company as of and for the nine months ended
September 30, 1997 and September 30, 1996, which information is derived from the
unaudited financial statements of the Company. The unaudited pro forma
information reflects the following transactions as part of the Minimum Offering:
(i) the sale of 1,153,846 shares of Class A Common Stock for $6.50 per share,
(ii) the use of a portion of the net proceeds to repay $4.5 million of
outstanding debt, and (iii) the use of a portion of the net proceeds to acquire
PFC. The pro forma operating data for the year ended December 31, 1996 also
shows the effect of the June 1996 acquisition of three properties (Fort Mylner
Shopping Center, Fort Mylner Commercial Center and Orange Grove Shopping Center)
as if the acquisitions were made at the beginning of the year. The following
selected financial and operating information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained herein.
<TABLE><CAPTION>
Nine Months Ended
Year Ended December 31 September 30,
--------------------------------------------- -------------------------
1996 1996 1995 1994 1993 1992 1997 1997 1996
Pro Pro
Forma Forma
(Unaudited) (in thousands) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues
Rental $ 4,012 $ 3,385 $ 3,028 $ 2,718 $ 2,938 $ 2,840 $ 3,261 $ 3,261 $ 2,240
Tenant reimbursement 283 249 332 281 232 23 140 139 76
Other operating income 629 583 612 77 47 123 227 227 533
Interest & loan service fees(1) 404 304
------ ------- -------- ------- -------- -------- ------ ----- -----
Total revenues 5,328 4,217 3,972 3,076 3,217 2,986 3,932 3,627 2,849
Depreciation & amortization 1,434 1,245 906 639 651 574 1,096 1,085 677
Other operating expense 3,149 2,640 2,757 2,023 2,228 1,914 2,606 2,386 1,928
----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating expense 4,583 3,885 3,663 2,662 2,879 2,488 3,702 3,471 2,605
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income 745 332 309 414 338 498 230 156 244
Interest expense (1,796) (1,676) (1,084) (438) (311) (312) (1,423) (1,671) (1,163)
Insurance proceeds (2) 76 76 5,917
(Loss) gain on disposal of operating
property (3) 86 86 (851) 2 166
Other income & expense (104) (104) (199) (71) 39 38 12 12 185
------- ------- ------- ------ ---- ---- ------- ------- ------
Income (loss) before taxes (993) (1,286) 4,092 (93) 66 390 (1,181) (1,503) (734)
Income taxes (4) 343 453 (1,588) 42 (4) (91) 441 562 275
----- ----- ------- ----- ------- ------ ------ ------ -----
Net income (loss) before cumulative
effect of change in accounting
principle (650) (833) 2,504 (51) 62 299 (740) (941) (459)
Cumulative effect of change in
accounting principle (5) (159)
------- ------- ------- ------ ------ ----- ------ ------- ------
Net income (loss) $ (650) $ (833) $ 2,504 $ (51) $ (97) $ 299 $ (740) $ (941) $ (459)
======= ======= ======= ====== ====== ===== ====== ======= ======
Net loss per share $ (0.07) $(0.08)
======= ======
BALANCE SHEET DATA :
Real Estate--before accumulated
depreciation(6) 37,248 37,231 21,542 17,457 15,588 8,537 37,617 37,550 36,455
Total assets 39,342 36,270 25,505 14,896 13,830 12,471 38,639 35,214 35,377
Total long-term debt 20,443 24,943 13,060 7,238 5,980 4,711 21,056 25,556 23,489
Total liabilities 24,271 27,936 16,177 8,032 6,787 5,667 24,668 27,981 26,580
Stockholders' equity 15,071 8,334 9,329 6,863 7,043 6,804 13,971 7,234 8,797
OTHER OPERATING DATA:
EBITDA (7) 1,635 6,082 984 1,028 1,276 1,253 1,106
Funds from operations(8) 412 3,410 588 554 873 144 218
Cash flows provided by operating activities 4,445 1,037 730 797 561 (513) 5,097
Cash flows used in investing activities (15,586) (7,360) (1,994) (1,847) (344) (267) (15,071)
Cash flows provided by (used in) financing
activities 11,607 5,713 1,047 1,852 173 450 10,221
</TABLE>
10
<PAGE>

- -------------
(1) Represents revenues generated by PFC on insurance premium finance lending
activity in the U.S. Virgin Islands, British Virgin Islands and Anguilla.

(2) On September 15, 1995, Hurricane Marilyn caused damage to most of the
Company's properties. In 1995 and 1996, Lockhart collected or booked as a
receivable insurance proceeds on a policy covering physical damage to the
Company's assets.

(3) In 1995, the Company wrote off the net book value of assets damaged by
Hurricane Marilyn.

(4) At December 31, 1996 and December 31, 1995, the Company had available
operating loss carryforwards of approximately $1,029,000 and $346,000
respectively to offset future taxable income through the years 2011 and
2010, respectively.

(5) The Company adopted SFAS 109 (Accounting for Income Taxes) in 1993 and
included the cumulative effect of adopting the new accounting principle in
1993 operations.

(6) The commercial real estate and undeveloped real estate carried on the
financial records of the Company are at book value of historical cost basis
or below-cost and do not reflect market values as established on either an
income valuation or replacement value basis.

(7) EBITDA means income before mortgage and other interest, income taxes,
depreciation and amortization. EBITDA is not intended to represent cash
flows from operations and should not be considered as an alternative to
operating income or net income (as determined in accordance with GAAP) as
an indicator of the Company's operating performance or to cash flows from
operating activities (as determined in accordance with GAAP) as a measure
of liquidity or to other consolidated income or cash flow statement data
(as determined in accordance with GAAP). The Company believes that EBITDA
is an appropriate measure of performance because it is predicated on cash
flow analyses. The Company's definition of EBITDA may not be identical to
similarly titled measures of other companies and, therefore, may not
necessarily be an accurate basis of comparison.

(8) Funds from operations means net income (loss) plus depreciation and
amortization. Funds from operations is not intended to represent cash flows
from operations and should not be considered as an alternative to operating
income or net income (as determined in accordance with GAAP) as an
indicator of the Company's operating performance or to cash flows from
operating activities (as determined in accordance with GAAP) as a measure
of liquidity or to other consolidated income or cash flow statement data
(as determined in accordance with GAAP). The Company believes that funds
from operations is a standard measure commonly reported and widely used by
analysts, investors and other interested parties in the real estate
industry. Accordingly, this information has been disclosed herein to permit
a more complete comparative analysis of the Company's performance relative
to other companies in the industry. The Company's definition of funds from
operations may not be identical to similarly titled measures of other
companies and, therefore, may not necessarily be an accurate basis of
comparison.

<PAGE>

RISK FACTORS

In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing the Units offered by this Prospectus.

{{Economic Performance and Value of Properties Dependent on Many Factors}}

{{Potential Risks of Investments Outside the United States and its Territories}}

{{Potential Increases in Certain Taxes and Regulatory Compliance}}

{{Concentration of Control; Anti-Takeover Effect of Certain Charter Provisions}}

<PAGE>

History of Losses; Uncertainty of Profitability

The Company reported consolidated net losses for the years ended December
31, 1996, 1994 and 1993 of $833,000, $51,000 and $97,000, respectively, and for
the nine months ended September 30, 1997 of $940,772. Although the Company
operated profitably for the years ended December 31, 1995 and 1992, there can be
no assurance that profitability on a quarterly or annual basis will be achieved
in the future. See "{{Management's Discussion and Analysis of Financial
Condition and Results of Operations.}}"

Concentration of Properties in the U.S. Virgin Islands

Currently, all of the Company's properties are located in the U.S. Virgin
Islands. The Company's revenue and the value of its properties may be affected
by a number of factors, including the local economic climate (which may be
adversely impacted by business layoffs or downsizing, industry slowdowns,
changing demographics, adverse weather conditions, the health of the local
tourist industry and other factors) and local real estate conditions (such as
oversupply of, or reduced demand for, retail and office space). Therefore, the
Company's performance will likely be dependent, to a large extent, on the
economic conditions in the U.S. Virgin Islands.

Inability to Repay or Refinance Indebtedness at Maturity

The Company will be subject to risks normally associated with debt
financing, including the risk that the Company's cash flow will be insufficient
to meet required payments of principal and interest, and the risk that any
indebtedness will not be able to be refinanced or that the terms of any such
refinancing will be less favorable than the terms of the expiring indebtedness.

No Limitation on Debt

The Company currently has a policy of incurring debt only if expected cash
flow from the project is sufficient to service the debt. However, the
organizational documents of the Company do not contain any limitation on the
amount of indebtedness the Company may incur. In the event of a change in the
current practice, the Company could become more highly leveraged, resulting in
an increase in debt service that could adversely affect the Company's cash flow
and an increase in the risk of default on the Company's indebtedness.

Need for Additional Financing

While the Company estimates that the net proceeds from the Maximum Offering
will provide adequate capital to fund the Company's growth and development for
at least the twelve months following the date of this Prospectus, additional
financing likely will be necessary for development of its residential property
inventory, expansion into the financial services industry or selective
acquisitions. In addition, the Company intends to fund certain development
projects with an aggregate of approximately $14.7 million of bank financing over
the next three years. Even if proceeds from this offering are sufficient to fund
the Company's activities during the next twelve months, there can be no
assurance that the Company will generate sufficient cash flow after such time to
fund its future growth. In such event, the Company would also have to seek
additional borrowings, effect debt or equity offerings or otherwise raise
capital.

<PAGE>

Economic Performance and Value of Properties Dependent on Many Factors

Real property investments are subject to varying degrees of risk. The
yields available from equity investments in real estate depend in large part on
the amount of income generated and expenses incurred. If the Company's
properties do not generate revenue sufficient to meet operating expenses,
including debt service, tenant improvements, leasing commissions and other
capital expenditures, the Company may have to borrow additional amounts to cover
fixed costs and the Company's cash flow and results of operations will be
adversely affected.

The Company's revenue and the value of its properties may be adversely
affected by a number of factors, including: the national economic climate; the
local economic climate; local real estate conditions; the perception of
prospective tenants of the attractiveness of the property; the ability of the
Company to manage and maintain its properties and secure adequate insurance; and
increased operating costs (including real estate taxes and utilities). In
addition, real estate values and income from properties are affected by such
factors as applicable laws, including tax laws, interest rate levels and the
availability of financing.

Dependence on Rental Income from Real Property

Since substantially all of the Company's total revenue (approximately 99%
in the year ended December 31, 1996) is derived from rental income from real
property, the Company's income and cash flow from operations would be adversely
affected if a significant number of the Company's tenants were unable to meet
their obligations to the Company or if the Company were unable to lease a
significant amount of space in its properties on economically favorable lease
terms. There can be no assurance that any tenant whose lease expires in the
future will renew such lease or that the Company will be able to release space
on economically advantageous terms.

Impact of Competition on Occupancy Levels and Rents Charged

Numerous retail, office and commercial properties compete with the
Company's properties in attracting tenants to lease space. Some of the competing
properties may be newer, better located or owned by parties better capitalized
than the Company. The number of competitive properties in a particular area
could have a material adverse effect on the ability to lease space in the
Company's properties (or at newly acquired or developed properties) as well as
the ability to charge economically favorable rents.

Risk of Bankruptcy of Major Tenants

The bankruptcy or insolvency of a major tenant or a number of smaller
tenants may have an adverse impact on the properties affected and on the income
produced by such properties. Under bankruptcy law, a tenant has the option of
assuming (continuing) or rejecting (terminating) any unexpired lease. If the
tenant assumes its lease with the Company, the tenant must cure all defaults
under the lease and provide the Company with adequate assurance of its future
performance under the lease. If the tenant rejects the lease, the Company's
claim for breach of the lease would (absent collateral securing the claim) be
treated as a general unsecured claim. The amount of the claim would be capped at
the amount owed for unpaid pre-petition lease payments unrelated to the
rejection, plus the greater of one year's lease payments or 15% of the remaining
lease payments payable under the lease (but not to exceed the amount of three
years' lease payments).

Illiquidity of Real Estate Investments

Equity real estate investments are relatively illiquid and therefore tend
to limit the ability of the Company to vary its portfolio promptly in response
to changes in economic or other conditions. In addition, mortgage payments and,
to the extent the properties are not subject to triple net leases, certain
significant expenditures such as real estate taxes and maintenance costs, are
generally not reduced when circumstances cause a reduction in income from the
investment. Should such economic changes occur, the Company's income and cash
flow from operations could be adversely affected. A portion of the Company's
properties are mortgaged to secure payment of indebtedness, and if the Company
were unable to meet its mortgage payments, a loss could be sustained as a result
of foreclosure on such properties by the mortgagee.

<PAGE>

Risk of Renovation and Development Activities

The Company intends to continue developing properties and acquiring other
real estate and non-real estate businesses. Estimates of renovation costs and
costs of improvements to bring an acquired property up to standards established
for the market position intended for that property may prove inaccurate. In
addition, there are general investment risks associated with any new real estate
and non-real estate investment.

The Company intends to expand and renovate its properties from time to
time. Expansion and renovation projects generally require expenditure of capital
as well as various government and other approvals, the receipt of which cannot
be assured. While development policies with respect to expansion and renovation
activities are intended to limit some of the risks otherwise associated with
such activities, the Company will nevertheless incur certain risks, including
expenditure of funds on, and devotion of management's time to, projects which
may not be completed.

The Company also intends to review from time to time the possibility of
developing other commercial ventures on its own real property holdings in
accordance with the Company's development policies. Risks associated with the
Company's development and construction activities may include: abandonment of
development opportunities; construction costs of a property exceeding original
estimates, possibly making the property uneconomical; and untimely construction,
resulting in increased debt service expense and construction costs. In addition,
new development activities, regardless of whether they would ultimately be
successful, typically require a substantial portion of management's time and
attention. Development activities would also be subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary zoning, building,
occupancy, and other required governmental permits and authorizations.

Risk of Acquisitions

Acquisitions entail the risk that investments may fail to perform in
accordance with expectations. While the Company to date has limited its
acquisition activity to the U.S. Virgin Islands, the Company intends to expand
its business to geographic markets outside of the U.S. Virgin Islands. The
Company initially will not possess the same familiarity with new markets as it
has with the U.S. Virgin Islands, which could adversely affect its ability to
acquire, develop or manage any new real estate and non-real estate acquisitions.

Potential Risks of Investment Outside the United States and its Territories

All of the Company's shopping centers and other real estate holdings are in
the U.S. Virgin Islands, a United States territory, and the Company does not
have any current plans or agreements to acquire or develop properties outside
the U.S. Virgin Islands. However, Lockhart may acquire shopping centers and
other real estate in Caribbean markets other than the U.S. Virgin Islands. In
addition, PFC has operations in certain Caribbean markets outside the U.S.
Virgin Islands, and although the Company intends to continue to grow such
operations following its acquisition of PFC, these operations are currently
immaterial to the Company on a pro forma basis. As PFC's foreign operations
expand and if the Company acquires real estate properties outside the U.S.
Virgin Islands, Lockhart will be increasingly exposed to risks and uncertainties
inherent in foreign markets. Such risks include currency fluctuations,
restrictions on the repatriation of funds, potentially adverse tax consequences
and varying regulatory schemes. There can be no assurance that one or more of
such factors will not have an material adverse effect on the Company's future
operations in markets outside the U.S. Virgin Islands and, consequently, on the
Company's results of operations.

Potential Increases in Certain Taxes and Regulatory Compliance

Because increases in income and service or transfer taxes are generally not
passed through to tenants under leases, such increases may adversely affect the
Company's cash flow from operations. The Company's properties also are subject
to various federal, state and local regulatory requirements, such as
requirements of the Americans with Disabilities Act and state and local fire and
life safety requirements. Failure to comply with these requirements could result
in the imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that its properties are either currently
in substantial compliance with such regulatory requirements, or the Company has
identified certain necessary improvements and has begun the process of
implementing such improvements. However, there can be no assurance that these
requirements will not be changed or that new requirements will not be imposed
which would require significant unanticipated expenditures by the Company and
could have an adverse effect on the Company's income and cash flow from
operations.

<PAGE>

Insurance

The Company carries comprehensive liability, fire, flood, windstorm,
earthquake, extended coverage and business interruption insurance covering all
of its properties, with policy specifications and insured limits which the
Company believes are adequate and appropriate under the circumstances. There
are, however, certain types of losses that are not generally insured because it
is not economically feasible to insure against such losses. Should a loss in
excess of insured limits occur, the Company could lose its capital invested in
the property, as well as the anticipated future revenue from the property and,
in the case of debt which is with recourse to the Company, would remain
obligated for any mortgage debt or other financial obligations related to the
property. Any such loss would adversely affect the Company. No assurance can be
given that material losses in excess of insurance proceeds will not occur in the
future.

Environmental Risks

Under various federal, state and local laws, ordinances and regulations,
the Company may be considered an owner or operator of real property and,
therefore, may become liable for the costs of removal or remediation of certain
hazardous substances released on or in its property or disposed of by the
Company, as well as certain other potential costs which could relate to
hazardous or toxic substances (including governmental fines and injuries to
persons and property). Such liability may be imposed whether or not the Company
knew of, or was responsible for, the presence of such hazardous or toxic
substances. See "{{Business--Environmental Considerations}}".

Concentration of Control; Anti-Takeover Effect of Certain Charter Provisions

The Company has two classes of authorized voting Common Stock, Class A
Common Stock and Class B Common Stock. Both classes will vote together as one
class on all matters generally submitted to a vote of stockholders, including
the election of directors. The holders of the Class B Common Stock will have
approximately 97.7% of the outstanding voting power of the Company's Common
Stock, if the Maximum Offering is sold, and 98.7% of the outstanding voting
power of the Common Stock if the Minimum Offering is sold. These stockholders
will have the collective ability to elect the Company's directors and to
determine the outcome of corporate actions requiring stockholder approval.
Lockhart's executive officers and directors collectively own or control
approximately 3,739,931 shares of Class B Common Stock, or approximately 42.6%
and 42.7% of the voting power of the Common Stock based on the Maximum Offering
and the Minimum Offering, respectively. This concentration of ownership and the
disproportionate voting rights of the Class A Common Stock and the Class B
Common Stock may make the Company a less attractive target for a takeover than
it otherwise might be, or discourage and render more difficult a merger
proposal, tender offer or proxy contest. See "Principal Stockholders".

The Board of Directors has the authority to issue up to 1,000,000 shares of
Preferred Stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of Class A Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock may have the effect of delaying, deterring or preventing a
change of control of the Company without further action by the stockholders and
may adversely affect the voting and other rights of the holders of Class A
Common Stock. The Company has no present plans to issue shares of Preferred
Stock.

<PAGE>

The Company's Amended and Restated Articles of Incorporation, as amended
(the "Restated Articles"), and Amended and Restated Bylaws limit the ability of
stockholders to raise matters at a meeting of stockholders without giving
advance notice, which may have the effect of deterring hostile takeovers or
delaying or preventing changes in control or management of the Company. These
provisions may limit the ability of stockholders to approve transactions that
they may deem to be in their best interests or transactions in which
stockholders might otherwise receive a premium for their shares over the
prevailing market prices. See "{{Description of Capital Stock}}".

Shares Eligible for Future Sale

If the Maximum Offering is sold, there will be 2,000,000 shares of Class A
Common Stock outstanding (10,589,658 shares assuming the conversion of all
outstanding shares of Class B Common Stock), and there will be an additional
200,000 shares of Class A Common Stock outstanding if all of the Warrants are
exercised. The shares of Class A Common Stock sold in this offering or issued
upon the exercise of the Warrants will be tradeable without restriction by
persons other than "affiliates" of Lockhart. The shares of Class A Common Stock
issuable upon conversion of Class B Common Stock will be deemed "restricted"
securities within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and, as such, may not be sold in the absence of registration
under the Securities Act or an exemption therefrom, including the exemptions
contained in Rule 144 under the Securities Act. No prediction can be made as to
the effect, if any, that future sales of shares of Class A Common Stock, or the
availability of such shares for future sales, will have on the market price of
the shares of Class A Common Stock prevailing from time to time. Sales of
substantial amounts of Class A Common Stock, or the perception that such sales
could occur, could adversely affect prevailing market prices for the Class A
Common Stock and such a reduction in the market price of the Class A Common
Stock could impair the ability of the Company to raise additional capital
through future public offerings of its equity securities.

The Class B Stockholders have agreed that, subject to certain limited
exceptions, during the period beginning from the date of this Prospectus and
continuing to and including the date six months after the date of this
Prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any securities of the Company which are substantially similar to the shares of
Class A Common Stock or which are convertible or exchangeable into securities
which are substantially similar to the shares of Class A Common Stock. In
addition, the Company's executive officers and directors as well as beneficial
owners of 5% or more of the Class B Common Stock have agreed that, subject to
certain limited exceptions, beginning from the date of this Prospectus and
continuing to and including the date two years after the date of this
Prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any securities of the Company which are substantially similar to the shares of
Class A Common Stock or which are convertible or exchangeable into securities
which are substantially similar to the shares of Class A Common Stock. Following
the six-month and two-year periods, no assurance can be given that a holder of
Class B Common Stock will not decide, based upon then prevailing market and
other conditions, to convert his or her Class B Common Stock to Class A Common
Stock and to dispose of all or a portion of such stock pursuant to the
provisions of Rule 144 under the Securities Act, subject to any applicable
volume limitations of Rule 144.

<PAGE>

Absence of Distributions to Holders of Class A Common Stock

Initially, no cash distributions will be paid to holders of Class A Common
Stock; however, the Board of Directors has a policy of declaring and
distributions to holders of Class B Common Stock. See "{{Distribution Policy}}"
and "{{Description of Capital Stock}}".

No Public Market; Possible Volatility of Stock Price

The Company's Class A Common Stock is currently not listed or traded on any
stock exchange or other quotation system, and there can be no assurance that an
active public market for the Company's Class A Common Stock will develop or be
sustained after the offering. The Company does not intend to apply for listing
of the Warrants on any exchange or market system. The initial public offering
price was determined by the Company based upon several factors. See "{{Plan of
Distribution}}" for a discussion of the factors considered in determining the
initial public offering price. If a trading market develops for the Company's
Class A Common Stock, the trading price could be subject to wide fluctuations in
response to quarterly variations in operating results, changes in financial
estimates by securities analysts, the operating and stock price performance of
other companies that investors may deem comparable to the Company and other
events or factors. Moreover, in some future quarter the Company's operating
results may fall below the expectations of securities analysts and investors. In
such event, the market price of the Company's Class A Common Stock would likely
be materially and adversely affected. In addition, the stock market in general
has experienced volatility that often has been unrelated to the operating
performance of particular companies traded on the market. These broad market and
industry fluctuations may adversely affect the trading price of the Company's
Class A Common Stock, regardless of the Company's operating performance.

Immediate Dilution

The initial public offering price of the Units is higher than the book
value per outstanding share of Class A Common Stock. Accordingly, purchasers in
the offering will suffer an immediate dilution of $4.73 (approximately 73%) in
the net tangible book value per share of the Class A Common Stock from the
initial public offering price. See "{{Dilution}}".

<PAGE>

USE OF PROCEEDS

The table set forth below summarizes certain information relating to the
anticipated use of offering proceeds by the Company, assuming that the Minimum
Offering and the Maximum Offering are sold and assuming that no Warrants are
exercised. While the estimated use of proceeds in the table below is believed to
be reasonable, this table should be viewed only as an estimate of the use of
proceeds.

<TABLE>
<CAPTION>
Minimum Offering Maximum Offering
---------------- ----------------
Amount Percentage Amount Percentage
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Gross Proceeds to the Company...................... $7,500,000 100.0% $13,000,000 100.0%
Less: Offering Expenses(1)....................... 974,000 13.0% 974,000 7.5%
---------- ----- ----------- -----
Net Proceeds to the Company........................ $6,526,000 87.0% $12,026,000 92.5%
---------- ----- ----------- -----
Less: Acquisition of PFC(2)..................... 687,500 9.1% 687,500 5.3%
Repayment of Indebtedness (3).................. 4,500,000 60.0% 5,000,000 38.4%
Fund Development Projects ..................... 500,000 6.7% 3,000,000 23.1%
Redemption of Common Stock (4)................. -- 0% 525,000 4.1%
---------- ----- ----------- -----
Cash available for general corporate purposes (5).. $ 838,500 11.2% $ 2,813,500 21.6%
========== ===== =========== =====
</TABLE>

- -------------
(1) The National Capital Bank of Washington has extended the Company a
revolving line of credit of up to $400,000 for a term of one year (the
"Credit Line"). Proceeds from the Credit Line are to be used to pay
expenses related to this offering. The Credit Line bears interest at the
bank's base rate, requires monthly payments of interest on the outstanding
balance, and expires on July 31, 1998.

(2) The Company has entered into a Stock Purchase Agreement to acquire PFC for
an aggregate purchase price of $687,500. See "{{Business--Acquisition of
PFC}}".

(3) If the Minimum Offering is sold, the Company intends to use $4.0 million to
reduce the outstanding balance of the Development Loan, and $500,000 to
prepay a portion of the Red Hook Loan. If the Maximum Offering is sold, the
Company intends to use $4.5 million to reduce the outstanding balance of
the Development Loan, and $500,000 to repay a portion of the Red Hook Loan.
See "{{Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources}}".

(4) If the Maximum Offering is sold, the Company intends to use $525,000 of the
last $1 million raised in the offering to repurchase up to 80,769 shares of
Class B Common Stock from five of the Company's current stockholders at a
redemption price of $6.50 per share. If less than $12,000,000 is raised in
the offering, no shares of Class B Common Stock will be redeemed. If more
than $12,000,000 but less than $12,525,000 is raised, then such proceeds
will be used to redeem shares of Class B Common Stock on a pro rata basis;
provided, however, that no fractional shares of Class B Common Stock will
be redeemed.

(5) The Company plans to use any remaining net proceeds from the offering for
general corporate and working capital purposes, including funding pending
development projects, expansion of PFC's operations and selective
acquisitions. Except for the PFC acquisition, there currently are no
agreements with respect to any acquisitions. The Company does not believe
it can accurately estimate the amounts to be used for each such purpose at
this time. Pending such uses, the Company intends to invest such funds in
short-term, interest-bearing instruments or accounts.

<PAGE>

DISTRIBUTION POLICY

The Company paid cash distributions of $317,898, $324,487 and $330,613 to
its stockholders in the years ended December 31, 1994, 1995 and 1996,
respectively, and such distributions constituted a return of capital in 1994 and
1996. The Company is not a real estate investment trust and, therefore, is not
required to make cash distributions under the U.S. Internal Revenue Code.

Initially, no cash distributions will be paid to holders of Class A Common
Stock. However, the Board of Directors has a policy of declaring annual
distributions on the Class B Common Stock at the rate of $.038 per share. The
Restated Articles provide that, the right of the Board of Directors to declare a
separate dividend payable only on the Class B Common Stock shall cease if the
Board of Directors declares a dividend on both classes of Common Stock or
declares a distribution in excess of $.0425 per share per annum on the Class B
Common Stock. Thereafter, each share of Class A Common Stock and each share of
Class B Common Stock will share equally in cash distributions and other
distributions. See "{{Description of Capital Stock--Common Stock}}".

The amount of distributions payable in the future will be reviewed
periodically by the Board of Directors in light of the Company's earnings,
financial condition, net asset value, market value and capital and other cash
requirements. It is the policy of the Board of Directors that the Company retain
an adequate portion of its earnings to support the growth of its business. There
is no requirement, and there can be no assurance, that distributions will be
paid. In addition, covenants in the Company's Loan Agreement with Banco Popular
de Puerto Rico may, in the future, restrict Lockhart's ability to pay
distributions. See "{{Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources}}".

<PAGE>

DILUTION

As of September 30, 1997, the net tangible book value of Lockhart was
approximately $7.2 million, or $0.83 per share of Common Stock. Net tangible
book value per share represents the Company's total tangible assets less total
liabilities divided by 8,667,177 total shares of Common Stock outstanding. After
giving effect to the net proceeds received by the Company from the sale of
2,000,000 Units pursuant to the offering at an initial public offering price of
$6.50 per Units, the pro forma net tangible book value of Lockhart as of
September 30, 1997, would have been approximately $18.7 million, or $1.77 per
share of Common Stock. Such amount represents an immediate increase in pro forma
net tangible book value of $0.94 per share of Common Stock to the Company's
existing stockholders and an immediate dilution to new investors of $4.73 per
share of Class A Common Stock. The following table illustrates the per share
dilution in pro forma net tangible book value to new investors assuming that the
maximum number of Units are sold in the offering and excluding any shares of
Class A Common Stock issuable upon exercise of the Warrants:

Initial public offering price per Unit.......................... $6.50
Net tangible book value per share before the offering......... 0.83
Increase in net tangible book value per share attributable
to net proceeds of the Maximum Offering..................... 0.94
----
Pro forma net tangible book value per share after the offering.. 1.77

Dilution to new investors....................................... $4.73
=====

The following table assumes the Maximum Offering is sold and summarizes, on
a pro forma basis as of September 30, 1997, the number of shares of Common Stock
purchased from Lockhart, the total consideration paid and the average price per
share paid by the Company's existing stockholders and by new investors
purchasing Units in the offering at an initial public offering price of $6.50
per Unit, excluding any shares of Class A Common Stock issuable upon exercise of
the Warrants:

<TABLE>
<CAPTION>
Shares of Common Stock
Purchased Total Consideration
---------------------- ------------------- Average Price Per Share
Number Percent Amount Percent of Common Stock
------ ------- ------ ------- -----------------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (Class B
Common Stock)................. 8,586,408 81% $ 6,780,879 34% $0.79
New stockholders (Class A
Common Stock)................. 2,000,000 19% 13,000,000 66% $6.50
---------- --- ----------- ---
Total....................... 10,586,408 100% $19,780,879 100%
========== === =========== ===
</TABLE>

<PAGE>

SELECTED FINANCIAL INFORMATION

{{The following table}} sets forth unaudited pro forma financial and other
information as well as combined historical financial information for Lockhart.
The information for 1996, 1995 and 1994 is derived from and should be read in
conjunction with the audited financial statements of the Company, which have
been audited by Ernst & Young, LLP, independent public accountants, whose report
thereon appears elsewhere herein; the information for 1993 is derived from the
audited financial statements of the Company, which have been audited by Ernst &
Young, LLP, although their report thereon is not included herein; the
information for 1992 is derived from audited financial statements of the
Company, which were audited by other independent public accountants and were
restated by management to reflect the reorganization of the Company in 1993.

The selected financial data at September 30, 1997 and for the nine months
ended September 30, 1997 and September 30, 1996 are derived from unaudited
financial statements of the Company. The unaudited financial information
includes all adjustments (consisting of normal recurring adjustments) management
considers necessary for fair presentation of the combined financial position and
results of operations for these periods. Combined operating results for the nine
months ended September 30, 1997 are not necessarily indicative of the results to
be expected for the entire year ended December 31, 1997.

The unaudited pro forma information reflects the following transactions as
part of the Minimum Offering: (i) the sale of 1,153,846 shares of Class A Common
Stock for $6.50 per share, (ii) the use of a portion of the net proceeds to
repay $4.5 million of outstanding debt, and (iii) the use of a portion of the
net proceeds to acquire PFC. The pro forma balance sheet data shows the effects
of these transactions as if they had occurred at the date of the balance sheets,
and the pro forma operating data shows the effects of these transactions as if
they had occurred at the beginning of the periods. In addition, the pro forma
operating data for the year ended December 31, 1996 shows the effect of the June
1996 acquisition of three properties (Fort Mylner Shopping Center, Fort Mylner
Commercial Center and Orange Grove Shopping Center) as if the acquisitions were
made at the beginning of the year. By necessity, such pro forma operating
information incorporates certain assumptions which are described in the notes to
the Pro Forma Condensed Financial Statements--Minimum Offering included
elsewhere in this Prospectus. The pro forma information does not purport to
represent what the Company's financial position or results of operations would
actually have been if these transactions had occurred on such date or at the
beginning of the period indicated, or to project the Company's financial
position or results of operations at any future date or for any future period.

<PAGE>

SELECTED FINANCIAL INFORMATION
LOCKHART CARIBBEAN CORPORATION

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31 September 30,
--------------------------------------------- -------------------------
1996 1996 1995 1994 1993 1992 1997 1997 1996
Pro Pro
Forma Forma
(Unaudited) (in thousands) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues
Rental $ 4,012 $ 3,385 $ 3,028 $ 2,718 $ 2,938 $ 2,840 $ 3,261 $ 3,261 $ 2,240
Tenant reimbursement 283 249 332 281 232 23 140 139 76
Other operating income 629 583 612 77 47 123 227 227 533
Interest & loan service fees(1) 404 304
------ ------- -------- ------- -------- -------- ------ ----- -----
Total revenues 5,328 4,217 3,972 3,076 3,217 2,986 3,932 3,627 2,849

Depreciation & amortization 1,434 1,245 906 639 651 574 1,096 1,085 677
Other operating expense 3,149 2,640 2,757 2,023 2,228 1,914 2,606 2,386 1,928
----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating expense 4,583 3,885 3,663 2,662 2,879 2,488 3,702 3,471 2,605
----- ----- ----- ----- ----- ----- ----- ----- -----

Operating income 745 332 309 414 338 498 230 156 244
Interest expense (1,796) (1,676) (1,084) (438) (311) (312) (1,423) (1,671) (1,163)
Insurance proceeds (2) 76 76 5,917
(Loss) gain on disposal of operating
property (3) 86 86 (851) 2 166
Other income & expense (104) (104) (199) (71) 39 38 12 12 185
------- ------- ------- ------ ---- ---- ------- ------- ------
Income (loss) before taxes (993) (1,286) 4,092 (93) 66 390 (1,181) (1,503) (734)
Income taxes (4) 343 453 (1,588) 42 (4) (91) 441 562 275
----- ----- ------- ----- ------- ------ ------ ------ -----
Net income (loss) before cumulative
effect of change in accounting
principle (650) (833) 2,504 (51) 62 299 (740) (941) (459)
Cumulative effect of change in
accounting principle (5) (159)
------- ------- ------- ------ ------ ----- ------ ------- ------
Net income (loss) $ (650) $ (833) $ 2,504 $ (51) $ (97) $ 299 $ (740) $ (941) $ (459)
======= ======= ======= ====== ====== ===== ====== ======= ======
Net loss per share $ (0.07) $(0.08)
======= ======
BALANCE SHEET DATA :
Real Estate--before accumulated
depreciation(6) 37,248 37,231 21,542 17,457 15,588 8,537 37,617 37,550 36,455
Total assets 39,342 36,270 25,505 14,896 13,830 12,471 38,639 35,214 35,377
Total long-term debt 20,443 24,943 13,060 7,238 5,980 4,711 21,056 25,556 23,489
Total liabilities 24,271 27,936 16,177 8,032 6,787 5,667 24,668 27,981 26,580
Stockholders' equity 15,071 8,334 9,329 6,863 7,043 6,804 13,971 7,234 8,797

OTHER OPERATING DATA:
EBITDA (7) 1,635 6,082 984 1,028 1,276 1,253 1,106
Funds from operations(8) 412 3,410 588 554 873 144 218
Cash flows provided by operating
activities 4,445 1,037 730 797 561 (513) 5,097
Cash flows used in investing activities (15,586) (7,360) (1,994) (1,847) (344) (267) (15,071)
Cash flows provided by (used in) financing
activities 11,607 5,713 1,047 1,852 173 450 10,221
</TABLE>
23
<PAGE>

- -------------
(1) Represents revenues generated by PFC on insurance premium finance lending
activity in the U.S. Virgin Islands, British Virgin Islands and Anguilla.

(2) On September 15, 1995, Hurricane Marilyn caused damage to most of the
Company's properties. In 1995 and 1996, Lockhart collected or booked as an
account receivable insurance proceeds on a policy covering physical damage
to the Company's assets.

(3) In 1995, the Company wrote off the net book value of assets damaged by
Hurricane Marilyn.

(5) The Company adopted SFAS 109 (Accounting for Income Taxes) in 1993 and
included the cumulative effect of adopting the new accounting principle in
1993 operations.

(8) Funds from operations means net income (loss) plus depreciation and
amortization. Funds from operations is not intended to represent cash flows
from operating activities (as determined in accordance with GAAP) from
operations and should not be considered as an alternative to operating
income or net income (as determined in accordance with GAAP) as an
indicator of the Company's operating performance or to cash flows as a
measure of liquidity or to other consolidated income or cash flow statement
data (as determined in accordance with GAAP). The Company believes that
funds from operations is a standard measure commonly reported and widely
used by analysts, investors and other interested parties in the real estate
industry. Accordingly, this information has been disclosed herein to permit
a more complete comparative analysis of the Company's performance relative
to other companies in the industry. The Company's definition of funds from
operations may not be identical to similarly titled measures of other
companies and, therefore, may not necessarily be an accurate basis of
comparison.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Overview

The following discussion should be read in conjunction with Selected
Financial Data and the Company's consolidated financial statements appearing
elsewhere in this Prospectus. Where appropriate, the following discussion
includes analysis of the effects of the offering.

The Company's revenue currently is derived from the rental of retail and
office space and the long-term ground lease of real property. In 1996 and 1995,
building space rental accounted for 89% of total revenue and ground lease
payments accounted for 11% of total revenue. Revenue growth from 1994
($3,075,709) to 1996 ($4,216,733) is primarily attributable to the acquisition
of operating properties. Since February 1995, the Company has acquired four
shopping centers with an aggregate of approximately 100,000 square feet of
rentable space for a total purchase price of $15.5 million.

Two wholly-owned subsidiaries, H.E. Lockhart Management, Inc. ("HELM") and
Lockhart Realty, Inc. ("LRI") account for 100% of the Company's revenue. HELM
owns and manages the Company's seven shopping centers, serving both the tourist
and local sectors of the economy with a mix of office and retail space. HELM
also owns two parcels which it leases to tenants under long-term ground leases.
LRI owns the Company's undeveloped real estate and operates the Company's
commercial park. In 1996, HELM accounted for 89% of the Company's total revenue,
and LRI accounted for 11%.

LRI is expected to account for a greater portion of total revenue in the
future as it develops the approximately 415 acres of land zoned for residential
use owned by the Company. In addition, LRI currently owns and operates the
Company's commercial business park and is developing a second commercial
business park and a new light-industrial park. See
"{{Business--Properties--Development Projects}}".

Revenue from HELM should increase in 1998 as a result of re-leasing in
late-1997 at one of the Company's tourist-oriented shopping centers at rental
rates above previous levels. Following Phase II construction at Lockhart Gardens
Shopping Center and at Grand Hotel Court in 1999, HELM should realize increased
revenues from the additional space available at these properties.

The Company also expects revenue growth through selective acquisition of
commercial real estate and from diversification into the financial services
industry. Acquisition activity and financial services growth include plans for
geographic expansion into other markets, in the near-term certain eastern
Caribbean islands, and eventually to targeted markets in North America. A
portion of the proceeds from this offering will be used to acquire an insurance
premium financing company that has an established and growing business in the
U.S. Virgin Islands and British Virgin Islands and has made inroads into certain
other eastern Caribbean markets.

On September 15, 1995, Hurricane Marilyn caused damage to most of the
Company's operating properties. This event led to a deterioration in total
revenue as certain tenants were unable to resume business even after the damaged
properties were repaired and reconstructed. As of September 30, 1997, the
Company has spent an aggregate of $6.5 million to repair damage at its operating
properties caused by Hurricane Marilyn, of which $5.9 million was reimbursed by
the Company's insurance carrier. Reconstruction of certain portions of the
Lockhart Gardens Shopping Center will be the final phase of rebuilding of
properties damaged by Hurricane Marilyn. See "{{Business -- Properties --
Development Projects}}".

<PAGE>

Results of Operations

Nine Months Ended September 30, 1997 Compared with Nine Months Ended
September 30, 1996

Total revenue (rental income, tenant expense reimbursement and other
operating income) for the nine months ended September 30, 1997 was $3,627,428
compared to $2,848,753 for the nine months ended September 30, 1996. The
$778,675 or 27% increase was principally attributable to revenue from the two
Fort Mylner properties and the Orange Grove Shopping Center, which the Company
acquired in June 1996. These properties were operated by the Company for nine
months during the period ended September 30, 1997 compared to only three months
for the period ended September 30, 1996. The revenue increase attributable to
the three acquired properties was $728,815, which represented 94% of the total
period-to-period increase.

For the nine months ended September 30, 1997 and 1996, total operating
expenses were $3,471,216 and $2,605,757, respectively.

Exclusive of depreciation and amortization, other operating expenses were
$2,386,318 or 66% of total revenue and $1,928,366 or 68% of total revenue for
the nine months ended September 30, 1997 and 1996, respectively. The $457,952
increase in operating expenses exclusive of depreciation and amortization was
primarily due to the three properties acquired in June 1996.

Depreciation and amortization increased by $407,607 or 60% for the nine
months ended September 30, 1997 compared to the nine months ended September 30,
1996. The increase was due primarily to the 1996 acquisitions and the $6 million
Phase I reconstruction of Lockhart Gardens Shopping Center, which was completed
in September 1996.

Interest expense increased by $508,617 or 44% for the nine months ended
September 30, 1997 compared to the nine months ended September 30, 1996. The
increase in interest expense was due to a $10.4 million increase in debt to fund
the acquisition of the three properties in June 1996.

As a result of the foregoing, the Company showed a net loss of $940,772 for
the nine months ended September 30, 1997 compared to a net loss of $459,741 for
the nine months ended September 30, 1996.

Year Ended December 31, 1996 Compared with Year Ended December 31, 1995

Total revenue for the years ended December 31, 1996 and 1995 was $4,216,733
and $3,971,800, respectively. The $244,933 or 6% increase resulted principally
from six months of rental income and tenant expense reimbursements from the
three properties that were acquired in June 1996. Total revenue from properties
acquired in June 1996 of $721,902 was partially offset by a decrease of $476,969
in revenue from the other properties, primarily as a result of damage from
Hurricane Marilyn. With the receipt of $453,355 in insurance reimbursements for
business interruption losses, revenue loss at the affected properties was
principally due to vacancies resulting from tenants who were unable to resume
business even after reconstruction was completed at the affected properties and
continued vacancies at the northern section of the Lockhart Gardens Shopping
Center that will not be filled until additional reconstruction work is commenced
by the ground lessee.

<PAGE>

For the years ended December 31, 1996 and 1995, total operating expenses
were $3,884,743 and $3,663,547, respectively.

Exclusive of depreciation and amortization, other operating expenses were
$2,639,969 or 63% of total revenue and $2,757,284 or 69% of total revenue for
the years ended December 31, 1996 and 1995, respectively. Operating expenses
exclusive of depreciation decreased by $117,315 in 1996 despite the additional
expenses from the three properties acquired in June 1996. Lower expenses in 1996
were primarily attributable to a reduction in overhead costs and the elimination
of certain professional fees incurred as a result of Hurricane Marilyn in 1995.
Adjusting for expenses of the properties acquired in 1996, operating expenses
exclusive of depreciation and amortization decreased by $342,411 or 12% in 1996.

Depreciation and amortization increased by $338,511 or 37% for the year
ended December 31, 1996 compared to the year ended December 31, 1995. The
increase was due primarily to the acquisition of three properties in June 1996
which resulted in an increase in the depreciable asset base, and the write-off
of certain capitalized loan costs related to notes that were liquidated with
proceeds from the Development Loan. See "--{{Liquidity and Capital Resources}}".

Interest expense increased by $591,726 or 55% for the year ended December
31, 1996 compared to the year ended December 31, 1995. The increase in interest
expense was principally due to a $10.4 million increase in debt to fund the
acquisition of three properties in June 1996.

Insurance proceeds of $75,670 and $5,916,981 for the years ended December
31, 1996 and 1995 represent amounts collected or receivable from insurance
companies for repairs to properties damaged by Hurricane Marilyn. By the end of
1996, the Company had utilized the insurance proceeds as follows: Drakes Passage
$430,592; Grand Hotel Court $89,883; Lockhart Gardens Shopping Center
$5,165,519; and Red Hook Plaza $230,987. With regard to the three shopping
centers acquired in 1996, all hurricane related damage had been repaired prior
to acquisition by the Company.

For the years ended December 31, 1996, there was a gain on the sale of
property of $86,440 as a result of the sale of approximately 1.7 acres of
undeveloped land zoned for residential use. For the year ended December 31,
1995, there was a loss of $850,972 due to a write-off of net book value of
certain properties damaged by Hurricane Marilyn.

As a result of the foregoing, the Company had a net loss of $832,710 for
the year ended December 31, 1996 compared to a net income of $2,503,875 for the
year ended December 31, 1995.

Year Ended December 31, 1995 Compared with Year Ended December 31, 1994

Total revenue for the years ended December 31, 1995 and 1994 was $3,971,800
and $3,075,709, respectively. The $896,091 or 29% increase was due principally
to ten months of revenue from Red Hook Plaza, which was acquired in February
1995. Total revenue from Red Hook Plaza was $718,446, which accounted for 80% of
the revenue increase.

<PAGE>

For the year ended December 31, 1995 and 1994, total operating expenses
were $3,663,547 and $2,661,868, respectively.

Exclusive of depreciation and amortization, other operating expenses were
$2,757,284 or 69% of total revenue and $2,022,721 or 66% of total revenue for
the years ended December 31, 1995 and 1994, respectively. The increase in
operating expenses exclusive of depreciation and amortization for the year ended
December 31, 1995 was due to expenditures of the property acquired in February
1995, certain overhead costs related to such acquisition and professional fees
incurred as a result of Hurricane Marilyn.

Depreciation and amortization increased by $267,116 or 42% for the year
ended December 31, 1995 compared to the year ended December 31, 1994. The
increase was due primarily to the February 1995 acquisition.

Interest expense increased by $646,345 or 148% for the year ended December
31, 1995 compared to the year ended December 31, 1994. The increase was due to
higher interest rates in 1995 and a $5.9 million increase in debt to fund the
acquisition of Red Hook Plaza.

Insurance proceeds of $5,916,981 for the year ended December 31, 1995
represented funds collected or receivable from insurance companies for repairs
to properties damaged by Hurricane Marilyn.

The write-off of $850,972 for the year ended December 31, 1995 compared to
a gain from the sale of a used vehicle of $1,713 for the previous year. The loss
for the year ended December 31, 1995 was due to a write-off of net book value
for properties damaged by Hurricane Marilyn.

As a result of the foregoing, the Company had a net income of $2,503,875
for the year ended December 31, 1995 compared to a net loss of $51,258 for the
year ended December 31, 1994.

Cash Flow

Net cash flow from operating activities declined by $5.6 million in the
nine months ended September 30, 1997 compared to the nine months ended September
30, 1996. The high level of net cash flow from operating activities in 1996 was
due to the collection of approximately $5 million in insurance proceeds. Net
cash flow used in investing activities was $14.8 million more in 1996 due to the
acquisition of three properties in 1996 and the reconstruction of Lockhart
Gardens Shopping Center. Net cash flow from financing activities was $9.8
million more in the nine months ended September 30, 1996 compared to the nine
months ended September 30, 1997 as a result of additional financing obtained for
the acquisition of the three properties in June 1996.

Net cash flow from operating activities increased by $3.4 million for the
year ended December 31, 1996 compared to 1995 as a result of insurance proceeds
collected in 1996 for the reconstruction of operating properties damaged by
Hurricane Marilyn. Net cash flow used in investing activities increased by $8.2
million for the year ended December 31, 1996 compared to the year ended December
31, 1995 due principally to the acquisition of three properties in 1996. Net
cash flow from financing activities increased by $6 million as a result of
increased debt to fund the 1996 acquisitions.

<PAGE>

Net cash flow from operating activities increased by $306,201 for the year
ended December 31, 1995 compared to the year ended December 31, 1994 as a result
of insurance proceeds collected in 1995 for the reconstruction of operating
properties damaged by Hurricane Marilyn. Net cash flow used in investing
activities increased by $5.4 million for the year ended December 31, 1995
compared to the year ended December 31, 1994 due principally to the acquisition
of one operating property in 1995. Net cash flow from financing activities
increased by $4.7 million as a result of increased debt to fund the acquisition.

Liquidity and Capital Resources

On October 21, 1996, HELM entered into a Loan Agreement (the "Development
Loan") with Banco Popular de Puerto Rico ("BPPR") to: (i) consolidate certain
pre-existing development loans; (ii) refinance certain acquisition indebtedness;
(iii) reduce the Company's interest costs; and (iv) achieve level debt service
payments. The parent company, Lockhart Caribbean Corporation, and HELM's
subsidiaries have each fully and unconditionally guaranteed the Development
Loan. The Development Loan limits the amount of dividends HELM can pay to the
parent company and, therefore, may limit the funds available for distribution to
the Company's stockholders. Currently, HELM may not pay dividends in excess of
$500,000 without the written consent of BPPR, which effectively restricted
approximately $2.5 million of the net assets of HELM as of December 31, 1996.
Approximately $19.1 million of proceeds from the Development Loan were drawn
down, primarily to retire the mortgages on certain operating properties, and
such amount is secured by first-priority mortgages on Drakes Passage Shopping
Mall, the Fort Mylner properties, the Grand Hotel Court, Lockhart Gardens
Shopping Center and Orange Grove Shopping Center and a second-priority mortgage
on Red Hook Plaza. The Company is obligated to make monthly principal and
interest payments of approximately $163,500 with respect to the $19.1 million
and expects to fund such payments with cash flow from operations.

The Development Loan also provides for a $1 million line of credit with an
interest rate of 0.5% above the prime rate. As of September 30, 1997, the
Company had $254,000 available under the line of credit, and the interest rate
was 9.0%. In addition, the Development Loan will provide approximately $580,000
to fund the development of the Garden Mall at Lockhart Gardens Shopping Center.
See "{{Business--Properties--Development Projects}}". The entire outstanding
balance under the Development Loan is due and payable on April 1, 2000. However,
BPPR has agreed, subject to certain conditions, including the continued absence
of any material default by the Company under the Development Loan, to convert
the balance into a 15-year installment loan with conditions similar to those of
the Development Loan. The Company does not expect to have adequate funds
available to retire the outstanding balance on April 1, 2000, and intends to
refinance the Development Loan, possibly with BPPR. For additional information
regarding the Development Loan, see Note 3 to the Company's consolidated
financial statements.

In 1991, BPPR has loaned LRI $1,135,000 to finance the development of Sugar
Estate Park, and such loan is secured by seven acres of land at Sugar Estate
Park. BPPR has agreed to extend a $3.8 million line of credit to LRI (the "LRI
Loan"). The amount currently owed to BPPR by LRI will be refinanced with the LRI
Loan, and the remaining balance of the LRI Loan will be available to fund the
development of Sugar Estate Commercial Centre and Market Square East. See
"{{Business--Properties --Development Projects}}". The LRI Loan will be secured
by mortgages on Sugar Estate Park, Sugar Estate Commercial Centre and Market
Square East.

<PAGE>

In February 1995, the Company acquired Red Hook Plaza for an aggregate
purchase price of $5.8 million from an unaffiliated party. The Company financed
this purchase with a $4.7 million first-priority mortgage payable to the seller
(the "Red Hook Loan") and $1.1 million of additional debt financing. The Red
Hook Loan bears interest at 8.75% per annum and matures in January 2004. The
$1.1 million was refinanced in October 1996 with proceeds from the Development
Loan.

In June 1996, the Company acquired the Fort Mylner Commercial Center, the
Fort Mylner Shopping Center and the Orange Grove Shopping Center for an
aggregate purchase price of $10.1 million from an unaffiliated party. The
Company financed this purchase with mortgage indebtedness that was refinanced in
October 1996 with proceeds from the Development Loan.

The National Capital Bank of Washington has extended to the Company the
Credit Line for up to $400,000 to be used to fund expenses associated with this
offering. Amounts outstanding under the Credit Line will be repaid with proceeds
from this offering. See "{{Use of Proceeds}}".

After giving effect to this offering and the application of the net
proceeds therefrom, the Company expects improvements in its financial
performance through changes to its capital structure, principally a significant
reduction in total debt. The Company's total debt is expected to be reduced by
$4.5 million and $5.0 million assuming the Minimum Offering or the Maximum
Offering is sold, respectively. Total debt, excluding payables and accrued and
deferred expenses, is expected to be $21.1 million and $20.6 million, assuming
the Minimum Offering or the Maximum Offering is sold, respectively, compared to
$25.6 million as of September 30, 1997. The Company expects this change to
result in a reduction in mortgage interest expense and, therefore, cash flow
from operations should increase by a corresponding amount.

The Company expects to meet its short-term liquidity requirements from cash
flow from operations. The Company expects cash provided by operations to
increase over the long-term as a result of (i) a reduction of net operating
funds needed to fund annual debt service, (ii) the acquisition of PFC and (iii)
increased net rentable space from the reconstruction and renovation of two
operating properties. The Company also believes that the foregoing sources of
liquidity will be sufficient to fund its short-term liquidity needs for the
foreseeable future, including capital maintenance expenditures.

The Company expects to meet certain long-term liquidity requirements such
as acquisitions, scheduled debt maturities, renovations, expansions, commercial
and residential development ventures, and other non-recurring capital
improvements through long-term secured and unsecured debt and the issuance of
additional equity securities.

Recent Developments

The Company has entered into an agreement to lease No. 10 Estate Thomas,
which is adjacent to Sugar Estate Park. No. 10 Estate Thomas consists of
approximately 2.64 acres zoned for business development and includes a Victorian
style residence, which sustained damage in Hurricane Marilyn. The Company
intends to repair the residence, converting it into office space, and to move
its principal executive offices into the new space. The lease agreement requires
the Company to pay monthly rent equal to the greater of $2,100 or one-half the
rent received by the Company from No. 44 Estate Thomas, which the Company
currently uses as its principal executive offices. No. 10 Estate Thomas is owned
by Gertrude L. Melchior, one of the Company's principal stockholders. See
"{{Certain Relationships and Related Transactions}}" and "{{Principal
Stockholders}}".

The Company has entered into a non-binding letter of intent with one of the
ground lessees at Sugar Estate Park, to sell to the ground lessee the acreage
that is currently leased to such lessee for $2.8 million (the "Sugar Estate
Sale"). The Company is also negotiating for the purchase of a shopping center
located on Raphune Hill on St. Thomas (the "Raphune Hill Acquisition"). The
Company is considering structuring the Raphune Hill Acquisition as a joint
venture with an unaffiliated third party and funding the Company's investment
with a combination of bank financing and up to $1 million of the proceeds of the
Sugar Estate Sale. The Company intends to use a portion of the proceeds from the
Sugar Estate Sale to repay the LRI Loan, which had a balance of $750,000 as of
September 30, 1997. The Sugar Estate Sale and the Raphune Hill Acquisition are
subject to negotiation of definitive agreements, and there can be no assurance
that definitive terms will be agreed to or that the transactions will be
consummated.

<PAGE>

Forward Looking Statements

Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Prospectus contain forward-looking
statements which are subject to various risks and uncertainties. Actual results
could differ materially from those discussed herein. Important factors that
could cause or contribute to such differences include those discussed under
"Risk Factors" as well as those discussed elsewhere in this Prospectus.

New Accounting Pronouncements

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per
Share. This pronouncement establishes new standards for computing and presenting
earnings per share and applies to all entities with publicly held common stock
or potential common stock. This Statement is effective for financial statements
issued for periods ending after December 15, 1997 and earlier application is not
permitted. Management believes that the application of this Statement will not
have a material effect on the presentation of the Company's earnings per share.

In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. While all entities are encouraged to adopt this method of
accounting for all employee stock compensation plans, SFAS No. 123 allows an
entity to continue to measure compensation costs for its plan as prescribed by
APB Opinion No. 25, Accounting for Stock Issued to Employees. Management
believes that application of this Statement will not have a material effect on
the Company's financial statements.

<PAGE>

BUSINESS

Overview

Lockhart is an enterprise predominately owned by lineal descendants (and
their spouses) of Alfred H. Lockhart and his son, Herbert E. Lockhart. The
Company and its predecessors have conducted business in the U.S. Virgin Islands
since 1884, which makes Lockhart one of the oldest continuous operators of
commercial properties in the U.S. Virgin Islands. The enterprise, which started
out as a general goods store, has evolved over the years into the largest owner
of shopping centers in the U.S. Virgin Islands. In 1972, the Company solidified
its position as a leader in commercial real estate development through the
construction of the first shopping center on St. Thomas. This facility, the
Lockhart Gardens Shopping Center, was the first commercial property located on
St. Thomas to host national retailers. Lockhart is also one of the largest
owners of undeveloped land on the island of St. Thomas.

Since 1987 the Company has been under the direction of George H.T. Dudley
and Wesley S. Williams, Jr., two family members who function as Co-Chairmen of
the Board of Directors and Co-CEOs of the Company. Both are practicing attorneys
with specialities in banking, finance and real estate. Shortly after assuming
their roles, they recruited experienced professionals from outside the family to
manage the daily affairs of the Company. Under this management, Lockhart has
experienced a period of substantial growth through property acquisitions and
commercial property development. Since 1987, the Company has acquired four
shopping centers with an aggregate of approximately 99,750 square feet of
rentable space, expanded one shopping center by approximately 6,000 square feet,
developed one commercial park, commenced the development of a second commercial
park, completed the first phase of renovation of the Grand Hotel Court,
completed the reconstruction of 85,000 square feet of retail space damaged by
Hurricane Marilyn, and completed an updated master-plan for the development of
the Company's commercial and residential undeveloped land holdings. In addition,
under the leadership of Messrs. Dudley and Williams, the Lockhart management
team has restructured the Company's finances through the Development Loan and
effected a series of corporate transactions that were executed to: (i) enhance
the effective management of the Company's properties; (ii) enable the Company to
finance its real estate and non-real estate endeavors more easily; (iii) adhere
to the dictates of the evolving tax laws; (iv) eliminate and mitigate financial
exposure of Company assets to unrelated liability; and (v) position the Company
for this offering.

Lockhart owns, acquires, operates, renovates, develops, and manages
shopping centers and other commercial real estate, primarily on the islands of
St. Thomas and St. Croix. The Company currently owns and operates seven shopping
centers and is actively planning or developing seven projects. Lockhart also
owns and operates commercial parks in which it builds the infrastructure for
commercial development (roads and utilities) and leases designated parcels under
long-term ground leases. In addition, the Company owns an aggregate of
approximately 415 acres of undeveloped real estate zoned for residential
development of varying densities. The Company also owns No. 44 Estate Thomas, an
office building which the Company currently uses as its principal executive
offices. No. 44 Estate Thomas is adjacent to Sugar Estate Park, and the building
has approximately 2,400 square feet of office space. In management's opinion,
the Company's properties are covered adequately by insurance.

The Company's primary business strategies are to: (i) actively manage its
developed real property portfolio to improve cash flow; (ii) complete its
planned projects and develop its land holdings for their highest and best use;
(iii) selectively execute real property acquisitions in strategic submarkets;
and (iv) selectively diversify into strategic sectors of the financial services
industry. The Company believes that its operating properties are located in
strong retail submarkets for tourists, local consumers or commercial office
tenants. This dispersion among local submarkets mitigates the Company's
dependence on the tourism industry or any one local market sector. In addition,
the Company currently has seven commercial projects in the advanced planning
stage. Lockhart also plans to develop its inventory of 415 acres of land zoned
for residential use.

<PAGE>

Capitalizing on the collective experience of the Company's senior
management in the financial services industry, Lockhart intends to diversify its
operations to provide select financial services. As a first step to
diversification into the financial services industry, the Company is acquiring
Premium Finance Company of the V.I., Inc. ("PFC"). PFC provides insurance
premium financing primarily to residents of the U.S. Virgin Islands and the
British Virgin Islands. Lockhart has agreed to acquire PFC for $687,500 and will
use a portion of the proceeds from this offering to complete the PFC
acquisition. See "{{Use of Proceeds}}".

Organizational Structure

Lockhart Caribbean Corporation is the holding company of the operating
companies HELM and LRI. HELM owns and operates, directly and through its
subsidiaries, seven shopping centers. Specifically, HELM owns and manages, on
St. Thomas: Drakes Passage Mall; Grand Hotel Court; Fort Mylner Shopping Center;
Fort Mylner Commercial Center; Red Hook Plaza; and Lockhart Gardens Shopping
Center; and on St. Croix: Orange Grove Shopping Center. HELM directly owns
Drakes Passage Mall, Grand Hotel Court and Lockhart Gardens Shopping Center;
Fort Mylner Properties, Inc., a wholly-owned subsidiary of HELM, owns the Fort
Mylner Shopping Center and the Fort Mylner Commercial Center; Golden Orange
Centers, Inc., a wholly-owned subsidiary of HELM, owns the Orange Grove Shopping
Center; and Red Hook Plaza, Inc., a wholly-owned subsidiary of HELM, owns Red
Hook Plaza. In addition, HELM directly owns two parcels, which it leases to
tenants under long-term ground leases. LRI owns the Company's undeveloped real
estate and operates the Company's commercial parks. HELM, LRI and each of their
subsidiaries are U.S. Virgin Islands corporations. The Company intends to
operate PFC as a separate subsidiary.

[ Organizational chart showing HELM, LRI and PFC under Lockhart Caribbean
Corporation; Fort Mylner Properties, Inc., Golden Orange Centers, Inc. and Red
Hook Plaza, Inc. and HELM; Market Square East, Inc. and Sugar Estate Park, Inc.
under LRI; and PFC-EC under PFC.]

<PAGE>

The U.S. Virgin Islands

The {{United States Virgin Islands}} (see Addendum C) are an unincorporated
territory of the United States. The islands are located approximately 1,100
miles southeast of Miami and approximately 1,500 miles southeast of New York
City. Puerto Rico is approximately 40 miles west of St. Thomas, and the British
Virgin Islands are less than three miles northeast of St. John, one of the U.S.
Virgin Islands. Charlotte Amalie, St. Thomas, is the capital. English is the
official language, and the U.S. dollar is the currency of the U.S. Virgin
Islands.

More than fifty islands make up the U.S. Virgin Islands. The three
principal islands are St. Croix, St. Thomas and St. John. St. Croix (82 square
miles) is the largest of the three islands and is known for its rolling hills
and broad central plain, which separates the dry east end from the more tropical
west end. St. Thomas (32 square miles) is the commercial hub of the U.S. Virgin
Islands and is the second most cosmopolitan island in the Caribbean, after
Puerto Rico. Two-thirds of St. John (20 square miles) is dedicated to the
National Park System. St. Thomas and St. John are distinguished by a mountainous
topography with numerous sandy beaches and inlets along the shoreline.

Tourism accounts for a large portion of the U.S. Virgin Islands' economy.
In 1994, 1995 and 1996, total visitor expenditures were approximately $919.6
million, $822.3 million, and $687.4 million, respectively, in the U.S. Virgin
Islands, with tourist expenditures accounting for approximately 68%, 65% and
49%, respectively. The majority of visitors arrive by cruise ship. In 1994, the
U.S. Virgin Islands had approximately 1,921,400 visitors, of which approximately
1,242,900 were cruise passengers; in 1995, there were approximately 1,741,300
visitors, of which approximately 1,171,300 were cruise passengers; and in 1996,
there were approximately 1,774,200 visitors, of which approximately 1,316,400
were cruise passengers. Tourism related employment accounts for a significant
percentage of the labor force in the U.S. Virgin Islands. Specifically, in 1994,
1995 and 1996, tourism-related employment accounted for 19.2%, 18.8% and 15.5%
of the labor force, respectively. The unemployment rates for the U.S. Virgin
Islands in 1994, 1995 and 1996 were 5.6%, 5.7% and 5.2%, respectively. Recent
declines in tourism and tourist-related expenditures and employment can be
attributed almost entirely to Hurricane Marilyn. The Company expects that as
damage from Hurricane Marilyn is repaired, tourism and related activity will
recover and eventually surpass pre-hurricane levels.

Properties

Drakes Passage Shopping Mall
Fort Mylner Commercial Center
Fort Mylner Shopping Center
Grand Hotel Court
Lockhart Gardens Shopping Center
Orange Grove Shopping Center
Red Hook Plaza

Longford Industrial Park
Sugar Estate Commercial Centre
Lockhart Gardens Shopping Center - Garden Mall
Market Square East - Phase I
Lockhart Gardens Shopping Center - Phase II
Grand Hotel Court - Phase II
Sugar Estate Plaza

<PAGE>

Sugar Estate Park
Cinema One Building

Shopping Centers

The Company's shopping centers range in size from approximately 11,000 to
140,000 square feet, and most properties include both retail and office space.
The Company maintains an ongoing leasing and marketing program to enhance the
cash flow potential of each operating property and to respond to tenant needs.
Lockhart also follows a schedule of regular physical maintenance, renovation and
refurbishment to preserve and increase the value of its properties.

The following table sets forth certain information for each of the
Company's shopping centers as of September 30, 1997:

Year Built/ Net Rentable Percent
Acquired Square Feet Occupied
-------- ----------- --------
{{Drakes Passage Shopping Mall}} 1920 33,000 89%
{{Fort Mylner Commercial Center}} 1996 10,800 100%
{{Fort Mylner Shopping Center}} 1996 26,200 93%
{{Grand Hotel Court}} 1914 23,900(1) 60%
{{Lockhart Gardens Shopping
Center}} 1972 140,198(2) 75%
{{Orange Grove Shopping Center}} 1996 30,600 82%
{{Red Hook Plaza}} 1995 32,145 75%

- -------------
(1) Approximately 4,500 square feet are being held vacant in preparation for
renovation as part of Grand Hotel Court - Phase II.
(2) Includes a ground lease for 30,000 square feet, or approximately 0.7 acres.

{{Drakes Passage Shopping Mall}} ("Drakes Passage") is located in the main
tourist shopping and central business district of downtown Charlotte Amalie and
offers access to pedestrian traffic from both Main Street and the Waterfront.
Drakes Passage contains approximately 33,000 square feet of rentable space
spread over two stories and a mezzanine, and is the only air-conditioned
shopping mall in the downtown area. The first floor has 20,500 square feet of
primarily tourist-oriented retail space and was 87% occupied as of September 30,
1997; the second floor has 12,500 square feet of office space and was 93%
occupied as of September 30, 1997. Retail tenants include Boolchands,
Cosmopolitan, Perfume Palace and Diamond's International.

<PAGE>

[Photograph of Drakes Passage taken from Main Street.]

{{Inside}} / {{Aerial}} / {{Floor Plan}} / {{Map}} / {{More}} (see Addendum D)

Lease Expirations

Number Total Net Rentable Percent of Net
Year of Tenants Square Feet Rentable Square Feet
- ---- ---------- ----------- --------------------
1998 2 308 2.4%
1999 1 551 1.6%
2000 4 1,709 5.0%
2001 2 1,409 4.2%
2002-7 18 21,637 65.0%

1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Occupancy Rate(1) 85% 73% 99% 93% 82%
Average Net Effective
Rent per Square Foot $30.01 $31.52 $26.57 $23.45 $27.28
- -------------
(1) Decreased occupancy rates during 1996 and 1995 were attributable to damage
caused by Hurricane Marilyn.

{{The Fort Mylner Properties}} consist of the Fort Mylner Commercial Center
with approximately 10,800 square feet of rentable space on two floors and the
Fort Mylner Shopping Center with approximately 26,200 square feet of rentable
space. The total parking spaces available at both properties is approximately
115. Both properties were acquired by the Company in June 1996 for an aggregate
purchase price of $6.4 million. The Fort Mylner properties are located in the
business district of the Tutu area, one of the most populous residential
communities on St. Thomas.

The Tutu commercial area market consist of approximately 356,000 square
feet of aggregate retail and office square footage that directly competes with
the Fort Mylner properties. As of late 1996, the average quoted market rental
rates per square foot were $27.50 and $21.50 for retail and office space,
respectively.

For the year ended December 31, 1996 (representing six months of ownership
and management by the Company) and the nine months ended September 30, 1997,
utility expense was approximately $27,395 and $65,019, respectively, and expense
for repairs, maintenance and professional services were approximately $28,311
and $33,387, respectively.

The Company is currently evaluating the nature, extent and timing of
capital improvements that will be undertaken during the next five years. Major
projects identified consist of realigning the access points to the properties,
installing a generator to service the shopping center and painting the exterior
of the shopping center. Management believes that a portion of the expenditures
associated with painting the shopping center will be recovered from the tenants,
as will the maintenance associated with the generator.

<PAGE>

The Company, after reasonable inquiry, is not aware of any material
factors, other than those discussed above, that would cause the audited
Statement of Revenue and Certain Expenses of Fort Mylner Properties, Inc. for
the twelve month period ended June 30, 1997, contained elsewhere in this
Prospectus not to be necessarily indicative of future operating results.

[Photograph of Fort Mylner Commercial Center.]

[Photograph of Fort Mylner Shopping Center.]

The Fort Mylner Commercial Center provides office space to three primary
tenants: BPPR occupies approximately 2,700 square feet, with two drive-thru
lanes and an automated teller machine; Vitelcom, a cellular telephone provider,
leases approximately 2,700 square feet; and Globalvest Management Company, L.P.,
a mutual fund investment firm, leases approximately 4,050 square feet. The Fort
Mylner Shopping Center consists of three one-story buildings with 21,600, 2,800
and 1,800 square feet of rentable space. Material lessees at the shopping center
operate a home furnishings store, a convenience store and a furniture store.
Other tenants include CommoLoco, Inc. (a small loan finance company) and
Kentucky Fried Chicken.

{{Close-Up}} / {{Site Plans}} / {{Map}} / {{More}} (See Addendum E)

Combined Lease Expirations
--------------------------
Number Total Net Rentable Percent of Net
Year of Tenants Square Feet Rentable Square Feet
- ---- ---------- ------------ --------------------
1998 1 4,050 10.9%
1999 4 8,700 23.5%
2000 2 1,500 4.0%
2001 1 1,200 3.2%
2002-7 4 11,850 32.0%

Fort Mylner Commercial Center
-----------------------------

1996
----
Occupancy Rate 100%
Average Net Effective
Rent per Square Foot $21.13

<PAGE>

Fort Mylner Shopping Center
---------------------------

1996
----
Occupancy Rate 100%
Average Net Effective
Rent per Square Foot $23.47

The tax basis for the Fort Mylner properties is approximately $3,962,000,
and they have a remaining depreciable life of 30.5 years under the modified
accelerated cost recovery system ("MACRS") depreciation methodology. The realty
tax rate is 1.25% of assessed value.

{{The Grand Hotel Court}} (the "Grand Hotel") is located at the beginning

of the main tourist shopping district in downtown St. Thomas and one block from
the municipal parking lot. The Grand Hotel complex consists of four two-story
stone and timber buildings with an aggregate of approximately 24,000 net
rentable square feet of retail and office space, of which 4,500 square feet will
be available upon completion of Phase II. See "--Development Projects". Tenants
include Irmela's Jewel Studio, Island Periodicals and International Voyager
Media; no tenant occupies 10% or more of the rentable space.

The Grand Hotel Court complex was originally built in the early 1800s and
is located in the Charlotte Amalie historic district. Alfred H. Lockhart
acquired the property in 1914. The Company extensively renovated the interiors
and exteriors of three of the Grand Hotel's four buildings in 1994 for an
aggregate cost of $1.9 million. Lockhart intends to invest approximately $1.4
million to complete the second phase of renovations to the Grand Hotel. See
"--{{Development Projects}}".

[Photograph of the main entrance to Grand Hotel.]

[Artist's rendering of the exterior of Grand Hotel.]

{{Inside}} / {{Close-Up}} / {{Aerial}} / {{Floor Plan}} / {{Site Plan}} /
{{Map}} / {{More}} (See Addendum F)

<PAGE>

1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Occupancy Rate 67% 69% 31% 76% 70%
Average Net Effective
Rent per Square Foot $35.62 $29.29 $25.25 $20.16 $24.48

The tax basis for the Grand Hotel is approximately $4,390,000, and it has a
remaining depreciable life of 28 years under MACRS. The realty tax rate is 1.25%
of assessed value.

{{Lockhart Gardens Shopping Center}} ("Lockhart Gardens") is located on the
eastern edge of Charlotte Amalie and within walking distance of the main cruise
ship dock. Lockhart Gardens consists of approximately 140,200 square feet of net
rentable square feet, which includes a ground lease of approximately 30,000
square feet. Lockhart Gardens has approximately 245 parking spaces. The
Company's major tenant will be a department store operated by Kmart Corporation
("Kmart"). Kmart has leased approximately 60,000 square feet at Lockhart
Gardens. The space leased by Kmart was formerly occupied by Woolworth Corp.
("Woolworth"), which has closed its operations in the U.S. Virgin Islands as
part of its previously announced intention to exit the general merchandise
business in the United States. Other key tenants currently include BPPR and
Footlocker.

A supermarket was operated pursuant to a ground lease of 30,000 square feet
of land until Hurricane Marilyn destroyed the entire shopping center, including
the supermarket, in September 1995. The supermarket continues to make its lease
payments but has not begun reconstruction of the building, as required under its
lease. Lockhart and the ground lessee are presently in litigation regarding this
matter and hope to achieve an amicable resolution, which may include assigning
the ground lease to another party willing to reconstruct the facility. The
Company has reconstructed one-half of the shopping complex and intends to
complete reconstruction of the complex upon resolution of the dispute concerning
the supermarket's ground lease. See "--{{Development Projects" -- Lockhart
Gardens Shopping Center -- Phase II}}.

Woolworth decided to close its department store operations throughout the
United States, including the U.S. Virgin Islands, and as of October 31, 1997,
ceased retail sales at Lockhart Gardens. Woolworth's lease does not expire until
2001, and it is obligated to make base rental payments and tenant reimbursements
until 2001. The Company and Woolworth are currently negotiating a lease
termination agreement. Kmart will take possession of the space formerly occupied
by Woolworth on January 1, 1998, pursuant to the terms of Kmart's lease with the
Company. Kmart anticipates commencement of retail activity in March, 1998.

[Photograph of the exterior of Lockhart Gardens.]

{{Close-Up}} / {{Aerial}} / {{Site Plan}} / {{Rendering}} /
{{Map}} / {{More}} (See Addendum G)

<PAGE>

Lease Expirations
-----------------
Number Total Net Rentable Percent of Net
Year of Tenants Square Feet Rentable Square Feet
- ---- ---------- ------------ --------------------
1998 -- -- --
1999 2 35,120(1) 25.0%
2000 -- -- --
2001 1 3,500 2.5%
2002-7 2 62,560(2) 44.6%
- -------------
(1) Includes the ground lease of 30,000 square feet.
(2) Includes 60,000 square feet leased by K-Mart.

1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Occupancy Rate 72% 98% 98% 98% 98%
Average Net Effective
Rent per Square Foot $5.91 $9.25 $9.25 $9.34 $9.92

The tax basis for Lockhart Gardens is approximately $4,300,000, and it has
a remaining depreciable life of 21.5 years under MACRS. The realty tax rate is
1.25% of assessed value.

{{Orange Grove Shopping Center}} ("Orange Grove") is located just outside

of Christiansted, the largest town on St. Croix, on the main traffic artery
leading westward out of town. The Company acquired Orange Grove in June 1996 for
an aggregate purchase price of $3.6 million. The approximately 30,600 square
feet of net rentable square feet at Orange Grove are used for retail and office
space. The major tenant is BPPR which leases approximately 5,400 square feet.
Other tenants include Kentucky Fried Chicken, PC Paradise (a computer retail and
service company) and the Medical Air Services Association.

The Christiansted area submarket consists of approximately 125,000 square
feet of aggregate retail and office square footage in shopping centers that
directly compete with Orange Grove. As of late 1996, the average quoted market
rental rates per square foot were $13.50 and $10.50 for retail and office space,
respectively.

For the year ended December 31, 1996 (representing six months of ownership
and management by the Company) and the nine months ended September 30, 1997,
utility expense was approximately $19,931 and $33,085, respectively, and expense
for repairs, maintenance and professional services were approximately $8,778 and
$12,730, respectively.

The Company is currently evaluating the nature, extent and timing of
capital improvements that Orange Grove will require during the next five years.
Major projects identified consist of revising the ingress and egress points and
painting the exterior. Management believes that a portion of the expenditures
associated with painting will be recovered from the tenants.

<PAGE>

The Company, after reasonable inquiry, is not aware of any material
factors, other than those discussed above, that would cause the audited
Statement of Revenue and Certain Expenses of Golden Orange Centers, Inc. for the
twelve month period ended June 30, 1997 contained elsewhere in this Prospectus
not to be necessarily indicative of future operating results.

[Photograph of the exterior of Orange Grove.]

{{Close-Up}} / {{Aerial}} / {{Site Plan}} / {{Map}} / {{More}} (See Addendum H)

1996 1995
---- ----
Occupancy Rate 86% 95%
Average Net Effective
Rent per Square Foot $15.35 $15.35

The tax basis for Orange Grove is approximately $3,082,000, and it has a
remaining depreciable life of 30.5 years under MACRS. The realty tax rate is
1.25% of assessed value.

{{Red Hook Plaza}} (the "Plaza") is located in the Red Hook area on the
eastern side of St. Thomas. The Company acquired the Plaza in February 1995 for
an aggregate purchase price of $5.5 million. The approximately 36,000 square
feet of net rentable square feet in the Plaza is spread over two buildings; the
main two-story building has both retail and office space and the one-story
building is used as a restaurant. Major tenants at the Plaza are a supermarket
with approximately 4,800 square feet and a pharmacy with approximately 3,877
square feet. Other retail tenants include BPPR and several eateries. The second
floor office space consists primarily of medical suites.

[Photograph of the exterior of the Plaza.]

<PAGE>

{{Close-Up}} / {{Site Plan}} / {{Map}} (See Addendum I)

1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Occupancy Rate 98% 90% 90% 90% 90%
Average Net Effective
Rent per Square Foot $24.25 $23.64 $22.50 $21.38 $20.35

The tax basis for the Plaza is approximately $5,212,000, and it has a
remaining depreciable life of 29.5 years under MACRS. The realty tax rate is
1.25% of assessed value.

Ground Leases

{{Sugar Estate Park}} (the "Park") is a commercial business park developed

by the Company on the eastern edge of Charlotte Amalie, mid-island on St.
Thomas. The Park consists of an aggregate of approximately 11.7 acres of land,
which has been subdivided for lease to tenants under long-term ground leases or
development by the Company.

Lockhart has leased an aggregate of approximately 5.4 acres to four
commercial tenants under long-term ground leases at the Park. In addition, there
are two one-acre parcels available for lease. The Company provides paved roads
and underground utility access at the Park, and tenants construct their own
facilities. Current tenants operate a self-storage facility, a building supply
store, a corporate office and distribution center for a local retail operation
and an electrical supply outlet. Three of these leases expire in 2000, and the
fourth expires in 2001. Each lease is subject to two five-year renewal options.
Upon expiration of each tenant's lease, the Company will obtain ownership of all
improvements on the land.

The Company has reserved approximately 2.5 acres at the Park to develop two
projects. See "--{{Development Projects--Sugar Estate Commercial Centre}}" and
"--{{Sugar Estate Plaza}}".

The tax basis for the Park is approximately $1,064,000, and the realty tax
rate is 1.25% of assessed value.

<PAGE>

[Aerial Photograph of the Park.]

{{Inside}} / {{Aerial}} / {{Site Plan}} / {{More}} (See Addendum J)

{{Cinema One Building}} is located in a residential area near the eastern

edge of Charlotte Amalie and sits on approximately one acre of land owned by
Lockhart. The Company has leased the parcel under a triple-net, long-term ground
lease that expires in December 2009, and the tenant has constructed a two-story
building on the property. The property is commonly referred to as the Cinema One
Building because of the multi-screen theater located there. The building also
has office space. Upon expiration of the lease, Lockhart will obtain ownership
of the building and all improvements.

[Photograph of Cinema One Building.]

{{Close-Up}} / {{Site Plan}} / {{Map}} (See Addendum K)

Development Projects

The following table sets forth certain information for each of the
Company's projects under development as of September 30, 1997:

Estimated
Estimated Cost Completion Date
-------------- ---------------
{{Sugar Estate Commercial Centre}} $0.9 million 1998
{{Lockhart Gardens Shopping Center -
Garden Mall}} $0.5 million 1998
{{Market Square East--Phase I}} $1.8 million 1998
{{Longford Industrial Park}} $1.3 million 1999
{{Lockhart Gardens Shopping Center -
Phase II}} $5.5 million 1999
{{Grand Hotel Court - Phase II}} $1.4 million 1999
{{Sugar Estate Plaza}} $5.3 million 2001(1)
- -------------

(1) Estimated completion date for both Phase I and Phase II development.

<PAGE>

{{Sugar Estate}} Commercial Centre will be located in Sugar Estate Park.

The Company will construct a multiple-use building suitable for tenants seeking
warehouse, retail and showroom space. The approximately 14,500 square feet of
rentable space in the planned building will be divided into eight bays ranging
in size from 1,300 square feet to 4,500 square feet. The scheduled completion
date is early-1998, and the estimated construction cost of $915,000 will be
financed with proceeds from this offering and the LRI Loan.

[Artist's rendering of Sugar Estate Commercial Centre.]

{{Aerial}} / {{Site Plan}} / {{Rendering}} / {{Map}} (See Addendum L)

{{Lockhart Gardens Shopping Center-Garden Mall}} involves the creation of a
mini-mall area within the existing shopping center with an aggregate of 10,000
square feet of rentable space, consisting of 8 to 10 retail stores ranging in
size from 500 to 1,000 square feet. The area will also include an elevator,
public restrooms and an emergency generator. The estimated completion date is
early 1998, and the estimated construction cost is $500,000. The Company expects
to finance construction of the Garden Mall with proceeds from this offering and
the Development Loan.

[Drawing of the interior perspective of the proposed Garden Mall.]

{{Site Plan}} / {{Rendering}} / {{Map}} (See Addendum M)

{{Market Square East}} is a commercial park development, which will be
located on the main highway that connects Charlotte Amalie to the eastern end of
St. Thomas. To be developed in multiple phases as tenant demand requires, Phase
I will include long-term ground leases with a retail and wholesale food discount
chain and a movie theater chain (for the construction of a multi-screen cinema
and restaurant complex). The Company will clear the site and construct the
required infrastructure, consisting of parking facilities, utilities, drainage,
power and access roads. The scheduled completion date of Phase I is the latter
half of 1998, and the estimated construction cost to the Company of $1.8 million
will be financed with proceeds from this offering and the LRI Loan.

[Artist's rendering from an aerial perspective of Phase I development.]

Phase II, currently in the preliminary development stage, will involve the
Company rezoning a portion of the property for commercial use, executing
long-term ground leases and constructing build-to-suit facilities for
high-quality tenants. The Company will continue to provide the infrastructure,
consisting of parking facilities, utilities, drainage, power and roads. The
scheduled completion date is dependent on the progress of the Company's leasing
program.

{{Aerial}} / {{Site Plan}} / {{Rendering}} / {{Map}} (See Addendum N)

{{Longford Industrial Park}} ("Longford") is located just off the main
highway that connects Charlotte Amalie to the eastern end of St. Thomas, where
the majority of the island's population resides. Longford will consist of 16
half-acre parcels available for long-term ground lease by light industry and
manufacturers, who will construct their own facilities. The Company has cleared
the site and public water and electrical power are available. Lockhart intends
to construct paved roads, a sewage treatment plant and appropriate drainage and
install electrical power and sewer connections to the subdivided parcels.
Construction of such improvements will begin once suitable tenants are
identified. The Company has invested $100,000 as of September 30, 1997, and
estimates that the total cost of Longford will be $1.3 million.

{{Aerial}} / {{Site Plan}} / {{Map}} (See Addendum O)

{{Lockhart Gardens Shopping Center-Phase II}} involves the construction of
approximately 47,000 square feet of rentable space in the northern half of the
shopping center, which includes 30,000 square feet currently subject to a ground
lease. As a part of that development, the Company has arranged with the Division
of Highway Planning of the Government of the U.S. Virgin Islands for the
installation of signalized access from the main east-west roadway into the
shopping center. The scheduled completion date is mid-1999 for an estimated cost
of $5.5 million.

[Artist's rendering of Lockhart Gardens following Phase II development.]

{{Aerial}} / {{Site Plan}} / {{Rendering}} / {{Map}} (See Addendum P)

44
<PAGE>

{{Grand Hotel Court-Phase II}} involves the final phase of the renovation

process of the entire property that began in 1994 with the first phase
renovations of three of the four buildings surrounding the courtyard. This final
phase of work is targeted to the fourth (main) building, which has frontage on
the main artery of the tourist shopping district in downtown Charlotte Amalie,
and will create a central atrium space and ground level passage surrounded at
both levels by high-end retail shops and a theme restaurant at the second level.
Approximately 4,500 square feet of additional space will be available for lease
by the Company upon completion. The scheduled completion date is late 1999, at
which time the property will be renamed the "Grand Galleria" and marketed as a
high-end tourist shopping destination. The Company estimates construction costs
of $1.4 million.

[Artist's rendering of the central atrium of the main building at Grand Hotel.]

{{Aerial}} / {{Site Plan}} / {{Floor Plan}} / {{Rendering}} /
{{Map}} (See Addendum Q)

{{Sugar Estate Plaza}} will also be located in Sugar Estate Park and will
be constructed in two phases. When completed, the two-building, three-story
complex will provide approximately 55,000 square feet of rentable retail and
office space. The Company has had preliminary discussions with certain primary
tenants for the first phase of development. The scheduled completion date for
the entire complex is early 2001, and the estimated construction cost is $5.3
million.

[Artist's rendering of Sugar Estate Plaza.]

{{Aerial}} / {{Site Plan}} / {{Map}} (See Addendum R)

Residential Property

The Company owns approximately 415 acres of undeveloped land on St. Thomas
which are zoned for residential use of differing levels of density. The Company
intends to selectively develop this land with single-family and multi-family
residential developments. In some areas, Lockhart will limit its activity to the
development of the infrastructure (roads, utilities and sewers) and subdivision
of the property for sale as residential lots for individual homeowner
construction. In some projects, Lockhart may joint venture with experienced
residential developers to build homes to be offered for sale. In certain areas,
the Company may sell parcels to other parties for development.

Where appropriate, the Company may seek zoning changes or variances to
maximize the development potential of its undeveloped real estate inventory. The
re-zoning process is a 6-9 month process that involves both the Executive and
Legislative branches of the Government of the Virgin Islands. The process
commences with the formal filing of an Application to Amend the Official Zoning
Map (the "Application") with the Virgin Islands' Legislature. The Application is
forwarded by the Legislature to the V.I. Government's Department of Planning and
Natural Resources ("DPNR") which undertakes an analysis of the re-zoning
request. An Application file is then created by the DPNR, outlining the
re-zoning request and the intended use of the land, and opened for public review
and public impact assessment. Public hearings are scheduled by DPNR, with
appropriate notification to the general public and adjacent property owners of
the hearing dates. Upon completion of the public hearing, the DPNR makes a
recommendation on the Application to the Virgin Islands' Legislature for its
final consideration and action. A re-zoning request approved by the Virgin
Islands' Legislature constitutes legislation that also requires the approval of
the Governor of the U.S. Virgin Islands prior to amending the Official Zoning
Map. The Company last submitted a re-zoning request in 1986 for 100 acres, which
was approved by the Virgin Islands' Legislature and the Governor in 1987 and
represented the largest single commercial development rezoning in the U.S.
Virgin Islands in the last thirty years.

<PAGE>

Competition

Under certain circumstances, the Company may have difficulty in effectively
competing against other parties for acquisition opportunities. In addition,
numerous retail, office and commercial properties currently compete with the
Company's operating properties in attracting and retaining tenants. Further, an
increase in the number of competitive properties in any particular submarket in
which the Company's properties are located could have a material adverse effect
on the Company's ability to lease space and the rents charged at any property
owned by the Company in accordance with the Company's internal growth strategy.

Acquisition of PFC

Lockhart has entered into a Stock Purchase Agreement, dated as of October
3, 1997, to purchase the outstanding shares of stock from all of the
shareholders of PFC. PFC is a U.S. Virgin Islands corporation, which was formed
in 1993, and has its main office located on St. Croix. The Company plans to
purchase the outstanding PFC shares for $687,500 and to use a portion of the
proceeds from this offering to pay the purchase price. The acquisition of PFC is
subject to regulatory confirmation by the Lieutenant Governor of the U.S. Virgin
Islands acting in his capacity as Commissioner of Insurance. Although Lockhart
has submitted its request for approval to the Lieutenant Governor and expects
the Lieutenant Governor's approval, the timing of the process cannot be
predicted with any certainty.

PFC is engaged in the business of financing insurance premiums incurred by
individuals and small companies seeking to insure primarily automobiles,
personal residences, commercial buildings, boats and airplanes, as well as
builder's risk or liability. PFC's business is generated through the referrals
from insurance agents and brokers that are the first point of contact for the
consumer in the procuring of insurance coverage. The insured will make an
initial down payment on the insurance premium (20-30%) with the balance financed
by PFC over a nine month period. The amount financed by PFC usually is sent
directly to the insurance carrier or to its local agent. In the event the
insured becomes delinquent, PFC has the right to cancel the policy and to draw
on the unearned premium refunded by the insurance company to repay the balance
owing on the loan. PFC also requires each insurance agent or broker to sign an
agreement that stipulates the basis of the relationship and the flow of
documents and funds with respect to coverage of the insured. The interest rate
and repayment terms of the premium financed depend on whether the borrower is an
individual or business entity, the amount of the down payment and the amount
borrowed.

PFC is the largest independent premium financing company in the U.S. Virgin
Islands and has operations in the U.S. Virgin Islands, the British Virgin
Islands and Anguilla (West Indies). In addition, PFC recently received
government approval to do business in St. Maarten, Netherlands Antilles. Its
primary competitors are smaller premium finance companies and insurance agents
and insurers that will finance premiums for select, primarily larger, clients.
Commercial banks also provide this service to select customers. In mid-1997, PFC
expanded its services to other Caribbean markets to increase volume and achieve
diversification. Through its wholly-owned subsidiary, Premium Finance Company
(E.C.) Limited, an Anguilla (West Indies) corporation ("PFC-EC"), PFC is
currently doing business in Antigua and Barbuda. PFC has a current network of
twenty-two agents in the U.S. Virgin Islands, four in the British Virgin
Islands, four in Anguilla and five in Antigua. Expansion plans for 1998 include
St. Lucia, St. Vincent and Grenada. The Caribbean market represents a potential
aggregate customer base of over five million people.

PFC's staff consists of four individuals, with an additional two to be
hired by the end of 1997. It is the Company's intent to retain the services of
PFC's current employees, including its president Richard E.W. Grant. Mr. Grant
is the founder of PFC and a former officer of Barclays Bank PLC, with over 30
years of experience in finance and banking on various Caribbean islands.

<PAGE>

In connection with the pending acquisition, the Company has loaned PFC
$75,000, which will be converted into a capital contribution upon consummation
of the acquisition. Lockhart has guaranteed a line-of-credit of up to $200,000
for PFC-EC at a local bank. In July 1997, two of the Company's executive
officers, John P. deJongh, Jr. and Cornel Williams, were elected to the PFC
board of directors. See "{{Management--Executive Officers and Directors}}".

Business and Growth Strategies

The Company's fundamental business and growth strategies are focused on
developing or acquiring shopping centers and office buildings that either serve
the local community or are located in select tourist destinations, and a
carefully planned diversification into the consumer financial services industry.
The Caribbean market (with an aggregate population base of over five million)
represents one of the fastest growing economic regions in the world, with
tourism as the driving force behind that growth. The Company believes that as
the island economies of the region grow, there will be a corresponding growth in
the financial well-being of the resident population matched by a growth in the
number and size of the businesses catering to increasing consumer demand for
both goods and financial services. Based on this operating paradigm, the
Company's business objectives are to develop the commercial locations out of
which these businesses will operate and to offer select consumer financial
services to serve consumer demand presently not met by the banks and other
existing financial intermediaries of the region.

Lockhart believes that a number of economic factors will enhance its
ability to achieve its business objectives: (i) the continuing improvement in
the economies of the U.S. Virgin Islands and other Caribbean markets following
Hurricane Marilyn and other recent hurricanes in the region; (ii) the Company's
focus on the growing consumer needs of the increasingly affluent resident
populations of the region; (iii) in the U.S. Virgin Islands, the limited
availability of undeveloped property zoned for commercial use and the continuing
need for housing at various price levels; and (iv) apart from the limited
traditional offerings of commercial banks, the general inadequacy of consumer
financial services offered throughout the Caribbean region.

The Company's primary business strategies are to: (i) actively manage its
property portfolio to improve cash flow; (ii) complete its planned projects and
develop its land holdings for their highest and best use; (iii) selectively
execute real property acquisitions in strategic submarkets; and (iv) selectively
expand its diversification into strategic segments of the financial services
industry.

External Growth

The Company intends to grow externally by acquiring additional developed
commercial properties in the U.S. Virgin Islands and in other Caribbean markets
that meet the Company's investment criteria, and by diversifying into the
consumer financial services field through the acquisition or development of
businesses offering select consumer financial services. The strengthening of the
U.S. Virgin Islands economy and the continued growth in the various Caribbean
markets as a result primarily of tourism will continue to enhance the economic
well-being of the resident population. The Company's business strategy, which
has been successful in the U.S. Virgin Islands, is to focus primarily on the
region's resident population and provide commercial real estate locations that
allow businesses to reach the local consumer. The Company's initiative into
financial services follows the same premise--to serve the growing consumer
financial services needs of the resident population.

Lockhart is one of the oldest continuous operators of commercial properties
in the U.S. Virgin Islands. Through the years, the Company has assembled a
unique collection of commercial properties that cater to tourists and serve the
local community. Lockhart intends to expand and diversify its Virgin Islands
presence by acquiring properties within other submarkets on St. Thomas and St.
Croix. The Company's business strategy and economic model also will result in
consideration of expansion in select

<PAGE>

tourist and local community submarkets throughout the eastern Caribbean. The
Company believes that its Caribbean base, its knowledge of the region and its
long-standing relationships with tenants, real estate professionals, financial
institutions and other sectors of the U.S. Virgin Islands community offer
significant competitive advantages in seeking investment opportunities in the
U.S. Virgin Islands and elsewhere in the Caribbean region.

The Company believes that diversification into the financial services
industry is a logical extension of its operations in light of Lockhart's
history, the backgrounds of the members of the Executive Committee, and the
Company's recognition of market opportunities. The founder of the Company,
Alfred H. Lockhart, also founded a bank in the Virgin Islands (then the Danish
West Indies), and he, his son and his grandson each served on the board of
directors of that bank and its successors until its merger into a federally
chartered U.S. bank. Separately, the Company has established relationships with
financial service providers in the U.S. Virgin Islands and throughout the
Caribbean that has resulted in the identification of business opportunities that
remain untapped by existing businesses offering financial services in the
targeted markets. In addition, the members of the Executive Committee (George
H.T. Dudley, Wesley S. Williams, Jr. and John P. deJongh, Jr.) and Richard E.W.
Grant, the president of the soon to be acquired PFC, each have extensive
experience in the financial services industry. See "{{Management Executive
Officers and Directors}}". These factors should allow the Company to capitalize
on the growth opportunities in the non-banking, consumer financial services
field in the Caribbean.

For example, the Company believes that significant opportunities exist in
the insurance premium finance business. Insurance premiums in the Caribbean are
significantly higher than premiums charged for comparable coverage in the
continental United States. Homeowners insurance premiums currently average
approximately $2.50 per one hundred dollars of coverage in the U.S. Virgin
Islands, compared to $0.90 per one hundred dollars of coverage in Florida. These
high annual premiums create a demand for short-term financing that banks and
other financial intermediaries generally do not offer. Thus, as a first step in
the Company's diversification into the financial services industry, the Company
is acquiring PFC and its wholly owned subsidiary. See "{{Acquisition of PFC}}".
Lockhart's intent is to proceed aggressively on the Caribbean expansion of PFC
with a focus on individuals and smaller commercial businesses and to build a
Caribbean network and relations with commercial banks.

Internal Growth

The Company believes that significant opportunities exist to increase cash
flow from its existing real property portfolio because they are high quality
properties in desirable submarkets, and that such opportunities will be enhanced
as the U.S. Virgin Islands economy continues to grow. The Company's strategy for
maximizing the benefits from these opportunities include: (i) maintaining and
improving occupancy rates through pro active management and aggressive leasing;
(ii) realizing fixed contractual base rental increases or increases tied to
indices; (iii) passing through to tenants certain reimbursable expense items;
(iv) capitalizing on economies of scale arising from the size of the property
portfolio; (v) selectively developing its commercial real estate holdings; and
(vi) developing its residential property inventory to cater to the continuing
demand for home ownership.

Maintaining and Improving Occupancy Rates. The Company believes that it has
been successful in attracting, expanding and retaining a diverse tenant base by
actively managing its properties with an emphasis on tenant retention and
satisfaction. The Company utilizes its market position and its relationships
with a broad array of real estate professionals and tenants to implement its
leasing efforts and to monitor and understand the current and future space needs
of retail and office tenants in various submarkets. This constant contact with
the local market enables the Company to attract and place tenants throughout its
properties, thereby improving the Company's penetration in the tenant community.
The Company believes that the breadth of its submarket presence provides it with
an advantage to successfully compete for tenants by offering a wide variety of
space and location alternatives both to prospective tenants and to existing
tenants whose facility requirements change over time.

<PAGE>

Contractual Base Rental Increase. The Company's standard lease agreement
contains either fixed contractual rental increases in the tenant's base rent or
increases which are tied to indices, such as the Consumer Price Index. Between
January 1, 1995 and December 31, 1996, the contractual annual base rents at the
Company's operating properties increased by an aggregate of approximately
$126,873 due to such increases.

Pass-through of Certain Operating Costs. In the execution of all new lease
agreements, the Company implemented a policy of passing through to tenants
certain common area maintenance charges applicable to the commercial development
in which they rent. The expense charged to each tenant is determined
proportionately based on the percentage of the gross square footage specifically
occupied by the tenant. Approximately 47% of the Company's existing leases
contain such expense pass-through provisions.

Capitalizing on Economies of Scale. The size of the Company's portfolio
permits the Company to enhance its portfolio value by lowering operating costs
and expenses incrementally. The Company seeks to capitalize on economies of
scale resulting from the maintenance of centralized accounting and property
management systems, which spreads administrative costs over all of the operating
properties, thereby reducing the per square foot administrative expense. The
Company also strives to minimize overhead by controlling corporate and
administrative expenses and assigning responsibility for multiple properties to
its centralized maintenance staff. Acquisition, management, leasing, renovation
and development activities are coordinated to enhance responsiveness to market
opportunities and tenant needs. The facilities manager ensures that renovation
and maintenance work is done in a timely manner. The property manager interacts
with the Company's tenants, responds to tenant needs, supervises leasing and
marketing activities, and works closely with the development manager in
identifying and initiating market opportunities on undeveloped properties and
within operating properties. This integrated approach permits the Company to
analyze the economic terms and costs (including tenant build-out and
retrofitting costs) for each lease on a timely and efficient basis. With respect
to the development manager, the Company has the in-house capability to analyze
submarket opportunities to ensure that a property under consideration for
acquisition is fundamentally sound in terms of its structure, access and further
development potential. In the context of the Company's own development
activities, site analysis, preliminary design development and conceptualizing
proposed responses to the specific requests of potential tenants are all handled
in-house by the development manager. With respect to acquisitions, the Company
can analyze quickly the costs of upgrades and lease-up potential. The Company is
able to commit to leasing and acquisition terms quickly, facilitate timely deal
execution and build-out of space for prospective tenants and minimize downtime
between lease rollovers.

Commercial Property Development. The Company is actively planning and
executing the development of its commercial property holdings and has six
projects scheduled to be completed by the end of 1999. See Properties
Development Projects". Several of the Company's projects offer future
development opportunities. For example, the Market Square East Phase I project
is only a five acre first phase of development for the planned commercial park
that ultimately will consist of approximately 50 acres. Although additional
development at Market Square East cannot be assured, the Company already is
seeking suitable tenants for subsequent phases.

Residential Property Development. The Company owns approximately 415 acres
of undeveloped land on St. Thomas which is zoned for residential use at various
density levels. The Company intends to selectively develop its undeveloped
residential property portfolio by working with experienced residential
developers to design and construct single-family and multi-family residential
developments. In some developments, Lockhart will limit its involvement to
providing the infrastructure (such as roads, utilities and sewers) and
subdividing the property for sale as residential lots for construction by
others. Lockhart also may develop neighborhood retail commercial centers to
support such residential communities, when appropriate. See "--{{Properties--
Undeveloped Property}}".

<PAGE>

Investing and Financing Policies

The following is a discussion of certain investment, financing and other
policies of the Company. These policies have been determined by the Company's
Board of Directors and may be amended or revised from time to time by the Board
of Directors without a vote of the stockholders.

Investment Policies

The Company's investment objective is to achieve long-term capital
appreciation through increases in the Company's value. The Company expects to
pursue its investment objective through ownership of and improvements to its
operating properties, by developing, leasing or selling its undeveloped property
to maximize each parcel's potential, to selectively acquire other real estate
properties, and to develop or acquire stategically positioned financial services
related businesses. The Company currently intends to invest in or develop
retail, office or commercial properties in the U.S. Virgin Islands. However,
future investment or development activities will not be limited to any
geographic area or product type or to a specified percentage of the Company's
assets. While the Company intends to diversify in terms of property locations,
size and market as well as line-of-business, the Company does not have any limit
on the amount or percentage of its assets that may be invested in any one
property, business or geographic area. In addition, the Company may purchase or
lease income-producing commercial and other types of properties for long-term
investment, expand and improve the real estate presently owned or other
properties purchased, or sell such real estate properties, in whole or in part,
when circumstances warrant.

The Company may also participate with third parties in property development
or ownership, through joint ventures or other types of co-ownership. Such
investments may permit the Company to own interests in larger assets without
unduly restricting diversification and, therefore, add flexibility in
structuring its portfolio.

Equity investments may be subject to existing mortgage financing and other
indebtedness or such financing or indebtedness as may be incurred in connection
with acquiring or refinancing these investments. Debt service on such financing
or indebtedness will have a priority over any distributions with respect to the
Common Stock. Investments are also subject to the Company's policy not to be
treated as an investment company under the Investment Company Act of 1940, as
amended.

While the Company's current portfolio consists of equity investments in
commercial real estate, the Company may, in the discretion of the Board of
Directors, invest in mortgages and other types of equity real estate interests.
The Company does not presently intend to invest in mortgages or deeds of trust,
but may invest in participating or convertible mortgages if the Company
concludes that it may benefit from the cash flow or any appreciation in value of
the property. Investments in real estate mortgages run the risk that one or more
borrowers may default under such mortgages and that the collateral securing such
mortgages may not be sufficient to enable the Company to recoup its full
investment.

The Company also may invest in securities of other entities engaged in real
estate activities or securities of other issuers, including for the purpose of
exercising control over such entities.

The Company does not currently intend to dispose of any of the operating
properties, although it reserves the right to do so if, based upon management's
periodic review of the Company's portfolio, the Board of Directors determines
that such action would be in the best interests of the Company. Any decision to
dispose of an operating property will be made by the Company and approved by a
majority of the Board of Directors.

<PAGE>

Financing Policies

As a general policy, the Company will incur indebtedness only if the
operating property or project will generate sufficient cash flow to service the
related debt. The Company may from time to time modify its debt policy in light
of current economic conditions, relative costs of debt and equity capital,
market values of its properties, general conditions in the market for debt and
equity securities, growth and acquisition opportunities and other factors. If
the Company's policy with respect to indebtedness were changed, the Company
could become more highly leveraged, resulting in an increased risk of default on
its obligations and a related increase in debt service requirements that could
adversely affect the financial condition and results of operations of the
Company. See "{{Risk Factors--No Limitations on Debt}}."

The Company has not established any limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole.

Policies With Respect to Other Activities

The Company has authority to offer Common Stock, Preferred Stock or options
to purchase stock in exchange for property and to repurchase or otherwise
acquire its Common Stock or other securities in the open market or otherwise,
and may engage in such activities in the future. The Company has not issued
Common Stock or any other securities in exchange for property or any other
purpose. The Company may issue Preferred Stock from time to time, in one or more
series, as authorized by the Board of Directors without the need for stockholder
approval. See "{{Description of Capital Stock--Preferred Stock}}". The Company
has not engaged in trading, underwriting or agency distribution or sale of
securities of other issuers, nor has the Company invested in the securities of
other issuers for the purposes of exercising control. The Company has made loans
to certain stockholders, but does not intend to make loans to its stockholders
in the future. Any future loan or advance to an executive officer, director of
stockholder of the Company will be for a bona fide business purpose and approved
by a majority of the disinterested directors of the Company. In addition,
material transactions with the Company's executive officers, directors or 5%
stockholders will be on terms no less favorable than can be obtained from
unaffiliated third parties. However, the Company may in the future make loans to
unaffiliated third parties, including, without limitation, to joint ventures in
which it participates. The Company intends to make investments in such a way
that it will not be treated as an investment company under the Investment
Company Act of 1940. The Company's policies with respect to such activities may
be reviewed and modified or amended from time to time by the Company's Board of
Directors without a vote of the stockholders.

Environmental Considerations

Under various federal and local environmental laws, rules and regulations,
a current or previous owner or operator of real estate may be required to
investigate and clean up hazardous or toxic substance or petroleum product
releases on its property and may be liable to a governmental entity or to third
parties for property damage and for investigation and clean-up costs incurred by
such parties in connection with the contamination. Such laws typically impose
clean-up responsibility and liability without regard to whether the owner knew
of or caused the presence of the contaminants, and the liability under such laws
has been interpreted to be joint and several unless the harm is divisible and
there is a reasonable basis for allocation of responsibility. The costs of
investigation, remediation or removal of such substances may be substantial, and
the presence of such substances, or the failure to properly remediate the
contamination on such property, may adversely affect the owner's ability to sell
or rent such property or to borrow using such property as collateral. Persons
who arrange for the disposal or treatment of hazardous or toxic substances at a
disposal or treatment facility also may be liable for the costs of removal or
remediation of a release of hazardous or toxic substances at such disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs incurred in connection
with the contamination. Finally, the owner of a site may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from such site.

<PAGE>

The Fort Mylner properties, acquired by the Company in June 1996, include
land where a gas station had been located. The gas station no longer exists at
the site, and its underground storage tanks have been removed. The seller of the
Fort Mylner properties provided the Company with previously commissioned reports
indicating that any contaminated soil had been removed and no contamination
remained at the site. The Company has no reason to believe that any of the other
properties acquired as part of this acquisition required any environmental
assessment. The Company has not undertaken or been required to undertake any
environmental assessment reports for any of its other properties.

The Company believes that the properties are in compliance in all material
respects with all federal and local laws, rules and regulations regarding
hazardous or toxic substances or petroleum products. The Company has not been
notified by a governmental authority, and is not otherwise aware, of any
material noncompliance, liability or claim relating to hazardous or toxic
substances or petroleum products in connection with any of its properties.

Employees

As of September 30, 1997, the Company had a total of 17 employees. PFC
currently has four employees, whom the Company intends to retain. None of the
Company's or PFC's employees are represented by a labor union. The Company
considers its relationships with its employees to be good.

Litigation

There are no legal proceedings to which the Company is a party, other than
routine litigation incidental to the business of the Company, which is not
otherwise material to the business or financial condition of the Company.

<PAGE>

MANAGEMENT

Executive Officers and Directors

The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------

<S> <C> <C>
{{George H.T. Dudley}}....... 48 Co-Chairman of the Board of Directors and Co-CEO
{{Wesley S. Williams, Jr.}}.. 55 Co-Chairman of the Board of Directors and Co-CEO
{{John P. deJongh, Jr.}}..... 40 President, Chief Operating Officer and
a Director
{{Cornel Williams}} ......... 40 Secretary, Treasurer and Chief Financial Officer
{{Etienne R. Bertrand}}...... 46 Senior Vice President-Development
{{Marna L. Green}}........... 45 Vice President-Property Management
{{Alton L. Adams}}........... 40 Director
{{Lisa S. Curreri}}.......... 57 Director
{{Kathleen P. Goldberg}}..... 53 Director
{{William H. Hastie}}........ 50 Director
{{Herbert E. Lockhart, III}}. 46 Director
{{John E. Oxendine}}......... 55 Director
</TABLE>

George H.T. Dudley is Co-Chairman of the Board of Directors and Co-CEO of
the Company and has been a member of the Company's Executive Committee since
1987. A member of the Virgin Islands and Pennsylvania Bars, and the founder in
1978 and managing partner of the firm of Dudley, Topper and Feuerzeig (the
largest law firm in the Virgin Islands), Mr. Dudley specializes in financial
services, real estate, finance, and corporate management, and general commercial
law. Mr. Dudley is a member of the Board of Trustees of the University of the
Virgin Islands (where he serves on its Executive Committee and as chairman of
the Board's Committee on Finance), a member of the American Law Institute
(serving on the Institute's governing Council and its Executive Committee), and
a current member and past Chairman of the Villanova Law School Board of
Consultors. Mr. Dudley received his undergraduate degree from George Washington
University and his J.D. from Villanova University. In 1994, Mr. Dudley received
the honorary title of Chevalier (Knight) from the King of Belgium for his years
of service as Honorary Consul of Belgium. Mr. Dudley served as an Adviser to the
Restatement of the Law, Third, Property (Mortgages), published by the American
Law Institute, and currently serves as an Adviser to the Institute's Restatement
of the Law, Third, Property (Joint Ownership), presently in development.

Wesley S. Williams, Jr. is and Co-Chairman of the Board of Directors and
Co-CEO of the Company and has been a member of the Company's Executive Committee
since 1987. A member of the District of Columbia and New York Bars, and a
partner since 1975 in the firm of Covington & Burling -- which has law offices
in Washington, D.C., London and Brussels, and a correspondent office in Paris
- --Mr. W. Williams specializes in financial services, real estate, finance, and
corporate and securities law. Mr. W. Williams is a member of the Board of
Trustees (and of its Executive Committee) of Penn Mutual Life Insurance Company
(sole parent of, inter alia, Janney Montgomery Scott), of the Board of Directors
(and of its Executive Committee) of CarrAmerica Realty Corporation, of the Board
of Managers of Blackstar L.L.C., and of the Boards of Directors of Blackstar
Communications, Inc. and of the

<PAGE>

Federal Reserve Bank of Richmond. Mr. W. Williams was formerly Chairman of the
Boards of Directors of Broadcast Capital, Inc. and Broadcast Capital Fund, Inc.
and a member of the Board of Directors of Salomon Inc. (sole parent of Salomon
Brothers Inc, Phibro Inc. and Phibro Energy Production, Inc.), A member of the
American Law Institute, Mr. W. Williams at one time held a faculty appointment
at Columbia University Law School, and later served as an Adjunct Professor of
real estate finance and financial services law at Georgetown University Law
Center. Mr. W. Williams holds B.A. and J.D. degrees from Harvard University, an
M.A. degree from Tufts University's Fletcher School (earned as a Woodrow Wilson
Fellow), and an LL.M. degree from Columbia University Law School. Confirmed by
the U.S. Senate and House of Representatives as a member of the Board of Regents
of the Smithsonian Institution, Mr. W. Williams formerly served as a member of
the Board of Overseers (and of its Executive Committee) of Harvard University.

John P. deJongh, Jr. has served as President and Chief Operating Officer of
the Company and as a member of its Board of Directors since 1996. Prior to
joining Lockhart, Mr. deJongh was a Senior Managing Consultant with Public
Financial Management, Inc. (co-managing the firm's strategic municipal
consulting practice), from 1993 to 1996; and earlier served as Executive
Assistant to the Governor of the U.S. Virgin Islands, from 1990 to 1992, and as
the U.S. Virgin Islands' Commissioner of Finance, from 1987 to 1990. While
holding these government positions, Mr. deJongh also served as Chairman of the
U.S. Virgin Islands Water and Power Authority (1987 to 1992), as Executive
Director of the U.S. Virgin Islands Public Finance Authority (1988 to 1990), and
as Chairman of the U.S. Virgin Islands Tax Review Board, Secretary of the U.S.
Virgin Islands Banking Board, and a member of the U.S. Virgin Islands Small
Business Development Agency (in each instance, 1987 to 1990). Mr. deJongh has
been a Vice President-Country Consumer Manager (responsible for consumer credit
in the U.S. and British Virgin Islands, and on St. Maarten, Netherlands
Antilles), having earlier served as a Second Vice President-Corporate Lending,
in each instance with Chase Manhattan Bank, N.A., on St. Thomas, U.S. Virgin
Islands (1984 to 1987). Mr. deJongh is a graduate of Antioch College and of
Chase Manhattan Bank's Corporate Credit Development Program. Mr. deJongh serves
as President of the Karen Ingeborg Lockhart Foundation, and is a member of the
Boards of Directors of the Community Foundation of the U.S. Virgin Islands, and
of the St. Thomas/St. John Chamber of Commerce.

Cornel Williams, who is not related to Mr. W. Williams, has served as the
Company's Corporate Secretary and Treasurer (Chief Financial Officer) since
1996. Prior to joining Lockhart, Mr. C. Williams served as Accounting Manager of
the U.S. Virgin Islands Port Authority from 1992 to 1996, as Finance Manager,
Virgin Islands Telephone Corporation, and Assistant Controller, Guyana Telephone
and Telegraph Company Ltd. from 1990 to 1992, as Controller, Cowpet Beach Resort
Development on St. Thomas from 1989 to 1990, as a financial analyst for Ford
Motor Company in Detroit, from 1986 to 1988, and as Financial Manager, Virgin
Islands Maritime Services from 1982 to 1984. Mr. C. Williams received his M.B.A.
(with a concentration in finance) from the University of Illinois, having
earlier received a baccalaureate degree from the University of the Virgin
Islands, where he currently serves as an adjunct instructor in business
administration and finance.

Etienne R. Bertrand has served as the Company's Senior Vice President -
Development since 1990 and as Secretary of the Company from 1991 to 1996. Prior
to joining Lockhart, Mr. Bertrand served as Senior Project Manager--Eastern
Region with the Barker Partrinely Group in Houston and southern Florida from
1986 to 1990, as a Construction Manager with Gerald D. Hines Interests in Miami
and Houston from 1981 to 1986, Project Architect with 3D/International in
Houston from 1979 to 1981, Tenant Construction Manager with Gerald D. Hines CPS
Division in Houston from 1978 to 1979, Project Job Captain with John S. Chase,
FAIA in Houston from 1977 to 1978, and as Technical Production Coordinator with
A.M. Kinney-Wm. J. Rabon & Associates in Cincinnati from 1975 to 1977. A
licensed architect in the U.S. Virgin Islands and Texas, Mr. Bertrand received
his bachelor of architecture degree from the University of Cincinnati.

<PAGE>

Marna L. Green has served as the Company's Vice President - Property
Management since 1995, having been the Company's Property Manager from 1992 to
1995. Prior to joining Lockhart, Ms. Green served as Executive Administrator of
Mahogany Run Condominiums on St. Thomas from 1986 to 1992, as Property Manager
at Watergate Villas for Property Management Caribbean, Inc. on St. Thomas from
1982 to 1986, and as Administration and Reservations Assistant, at St. Thomas'
Point Pleasant Resort from 1981 to 1982. Ms. Green studied at Michigan State
University.

Alton L. Adams was elected to the Company's Board of Directors in 1997.
Since 1996, the Chief Operating Officer of The Faneuil Group in Boston (a
marketing services organization providing database telemarketing and analytical
services in the U.S., Canada and Australia), Mr. Adams previously served as Vice
President - Sales with Equifax Financial Services Group from 1994 to 1996, as
Vice President Marketing with TRW Information Services Group from 1987 to 1994,
and as Manager - Planning and Business Development with Dun & Bradstreet
Corporation from 1985 to 1987. Mr. Adams, who received his bachelor's degree
from Georgetown University and his M.B.A. from the University of Pennsylvania's
Wharton School, has been a guest lecturer in the field of marketing at the
Anderson Graduate School of Business of the University of California at Los
Angeles, and also at Germany's University of Mainz.

Lisa S. Curreri was elected to the Company's Board of Directors in 1997.
Since 1996, Ms. Curreri has been a name principal in the St. Thomas firm of
McLaughlin Arguin Curreri Realtors, the Virgin Islands real estate brokerage
firm where she has worked as a broker since 1989. Ms. Curreri served as a real
estate sales associate with McLaughlin Realtors from 1979 to 1988, and was
earlier employed by St. Thomas' WBNB, Channel 10. A graduate of Foxcroft School
(Middleburg, VA), Ms. Curreri is a member of the National Association of
Realtors. She holds the Certified Residential Specialist and Graduate Realtor
Institute designations.

Kathleen P. Goldberg was elected to the Company's Board of Directors in
1981. A Vice President of Beverly Hills Manuscript and Rare Coins, Inc., and a
Trustee of its Profit and Pension Plan since 1981, Ms. Goldberg is active in
community charities in the Los Angeles area, and previously chaired the 14th
annual Vista Del Mar Child Care Service Fishing and Golfing Invitational. Ms.
Goldberg studied at Cazanovia College and Howard University.

William H. Hastie was elected to the Company's Board of Directors in 1997.
Since 1994, Mr. Hastie has been a partner, Vice Chairman and an Executive
Committee member with the law firm of Arnelle Hastie McGee Willis & Greene, Los
Angeles, California. Previously, Mr. Hastie served as co-founder and managing
partner of the law firm of Arnelle & Hastie, San Francisco, California, from
1985 to 1994, and as Undersecretary and General Counsel of California's State
and Consumer Services Agency, from 1979 to 1983. Mr. Hastie received his
bachelor's degree from Amherst College, a certificate from the University of
Strasbourg, and his J.D. from Boalt Hall School of Law of the University of
California at Berkeley. Mr. Hastie has been a member of the Board of Directors
of the California HealthCare Foundation since 1996, having previously served as
a member of the Board of Directors of Blue Cross of California from 1992 to
1996. He has also served as an Adjunct Professor of Law at the Graduate School
of Public Policy of the University of California at Berkeley.

Herbert E. Lockhart, III was elected to the Company's Board of Directors in
1985. Sole proprietor of a salvage business, Herbie's Big Tow, and a resource
recovery consultant since 1990, Mr. Lockhart previously served as reconstruction
project supervisor for St. Thomas' Mountaintop Condominium Association from 1991
to 1992. Mr. Lockhart was the Company's President from 1986 to 1990, and a Vice
President of the Company from 1981 to 1986. Earlier, Mr. Lockhart served as the
Manager of Operations and Water Technician for St. Thomas' Donoe Water Company
from 1977 to 1980, and as a management trainee with the Hechinger Company in the
Washington, D.C. suburbs. A graduate of Milton College, with further study at
the Computer Institute of Boston, George Mason University, and the University of
the Virgin Islands, Mr. Lockhart is the past President of the Rotary Club of St.
Thomas, and of the Humane

<PAGE>

Society of the Virgin Islands, and also served as Vice President of the Boy
Scouts of America/Virgin Islands Council, and as Treasurer of St. Thomas'
Masonic Lodge No. 356. Mr. Lockhart has also been active with the Navy League of
the United States' St. Thomas/ St. John Council, and as a charter member of the
Toastmasters Club of the Virgin Islands.

John E. Oxendine was elected to the Company's Board of Directors in 1997.
Since 1987, Mr. Oxendine has served as the founding Chairman and CEO of
Blackstar Communications, Inc., a television broadcast holding company with
stations in Florida, Michigan and Oregon. Since 1994, he has also served as
founding Chairman and CEO of Blackstar L.L.C., also a television broadcast
holding company, with additional stations in South Dakota and now sole parent of
Blackstar Communications, Inc. Mr. Oxendine was recently appointed President and
CEO of Broadcast Capital, Inc. and Broadcast Capital Fund, Inc., a venture
capital firm and supporting foundation, where he had served as President and CEO
from 1981 to 1995. Previously, Mr. Oxendine served as Assistant Chief in the
Financial Assistance Division of the Federal Savings & Loan Insurance
Corporation from 1979 to 1981, as Assistant Manager with the Chicago, London,
Mexico City, and New York offices of First National Bank of Chicago from 1974 to
1979, as a Senior Associate with Korn\Ferry Associates in Los Angeles from 1972
to 1974, as a Management Consultant with Fry Consultants in San Francisco from
1971 to 1972, and as a Management Advisor with the Bedford-Stuyvesant
Restoration Corporation from 1968 to 1969. Mr. Oxendine received his bachelor's
degree from Hunter College, and an M.B.A. from Harvard University's Graduate
School of Business Administration, where he was a John Hay Whitney Fellow. Mr.
Oxendine serves on the Boards of Directors of HSN, Inc., and of Medlantic Health
Care Group.

Committees of the Board of Directors

Executive Committee. The Board of Directors has a standing Executive
Committee composed of, ex officio, the Co-Chairmen, George H.T. Dudley, and
Wesley S. Williams, Jr., and the President, John P. deJongh, Jr. The Executive
Committee assists the Board of Directors in setting corporate policies for the
Company, and implements certain actions of the Board (e.g., overseeing the
Company's operations from day to day, and serving as the boards of directors of
the Company's several subsidiaries).

Audit and Compliance Committee. The Board of Directors has a standing Audit
and Compliance Committee composed of a chairman, William H. Hastie, and Alton L.
Adams, Lisa S. Curreri, George H.T. Dudley and Wesley S. Williams, Jr. The Audit
and Compliance Committee recommends the independent accountants to the Board of
Directors to audit the financial statements of the Company, and reviews with
such accountants their report thereon, including any questions and
recommendations that may arise relating to such audit and report of the
Company's internal accounting and auditing procedures. The Audit and Compliance
Committee also pursues on behalf of the Board matters having to do with
regulatory and other legal compliance.

Executive Personnel and Compensation Committee. The Board of Directors has
a standing Executive Personnel and Compensation Committee composed of a
chairman, John E. Oxendine, and Kathleen P. Goldberg and Herbert E. Lockhart
III. The Executive Personnel and Compensation Committee recommends to the Board
of Directors the compensation to be paid to the Company's executive officers and
administers the Company's Long-Term Incentive Plan. The Executive Personnel and
Compensation Committee also consults with management and with the Board of
Directors on other executive personnel issues arising from time to time.

<PAGE>

Director Compensation

Directors are reimbursed for reasonable expenses incurred in connection
with attendance at meetings of the Company's Board of Directors or committees
thereof. Additionally, each non-employee director currently receives $500 for
attending each meeting of the Board, a subscription to The Virgin Islands Daily
News, and options each year to purchase up to 1,000 shares of Class A Common
Stock at the fair market value at the date of grant. Directors who are employees
of the Company receive no compensation for their service as directors of the
Company.

Executive Compensation

The following table shows compensation paid to, deferred or accrued for the
benefit of each of the Company's executive officers whose salary and bonus for
the year ended December 31, 1996 totaled at least $100,000 in the aggregate (the
"Named Executive Officers") for all services rendered to Lockhart during the
fiscal year ended December 31, 1996.

<PAGE>

Summary Compensation Table

1996 Annual Compensation
---------------------------------------------
Name and Principal Position Salary Bonus(1) Other Annual(2)
- --------------------------- ------ -------- ---------------

George H.T. Dudley
Co-CEO and Co-Chairman $30,000 $187,749 --
Wesley S. Williams, Jr.
Co-CEO and Co-Chairman $48,000 $187,749 --

John P. deJongh, Jr.
President and Chief
Operating Officer $87,327 $ 60,000 $15,700
Etienne R. Bertrand
Senior Vice President,
Development $89,807 $ 61,700 $17,400
- -------------

(1) The amount reported as Bonus for each Named Executive Officer consists of
two components: (i) a July 31, 1995 to June 30, 1996 general performance
bonus and (ii) a transaction-based bonus for the same period. Consistent
with the Company's pay-for-performance policy, the bonuses were paid, as
regards the first component, for particular achievements in the ongoing
operations of the Company (including, among other factors, management of
recovery after Hurricane Marilyn in September 1995), and as regards the
second component, for successful conclusion of an acquisition of three
shopping centers. Bonuses were paid both in cash and in shares of Class B
Common Stock as follows:

Dudley Williams deJongh Bertrand
------ -------- ------- --------
Performance-Cash $ 37,500 $ 37,500 $ 22,500 $ 25,000
Performance-Stock 16,700 16,700 --- 8,350
Transaction-Cash 67,000 67,000 37,500 20,000
Transaction-Stock 66,549 66,549 --- 8,350
--------- --------- ---------- ---------
$187,749 $187,749 $ 60,000 $ 61,700

The value of the shares paid as bonuses is based on the fair market value
of the Class B Common Stock on the date of grant, as determined by the
Board of Directors of the Company. Following this offering, stock bonuses
will be paid in shares of Class A Common Stock or securities convertible
into or exchangeable for shares of Class A Common Stock under the Company's
Long-Term Incentive Plan and will no longer be paid in shares of Class B
Common Stock.

(2) The amount reported for Mr. deJongh and Mr. Bertrand include $13,200 and
$14,400 for a housing allowance, respectively. The Company has not included
in the Summary Compensation Table the value of incidental personal
perquisites furnished by the Company to the other Named Executive Officers,
since such value did not exceed the lesser of $50,000 or 10% of the total
of annual salary and bonus reported for such Named Executive Officers.

Long-Term Incentive Plan

Lockhart has adopted The Lockhart Caribbean Corporation Long-Term Incentive
Plan (the "LTIP"). Pursuant to the LTIP, officers, selected employees (including
employees who are also directors) and independent directors of Lockhart who have
been selected as participants are eligible to receive awards of various forms of
equity-based incentive compensation, including stock options, stock appreciation
rights,

<PAGE>

stock bonuses, restricted stock awards, performance units and phantom stock, and
awards consisting of combinations of such incentives. Lockhart has reserved
1,000,000 shares of Lockhart Class A Common Stock for issuance under the LTIP.

Subject to the maximum shares reserved under the LTIP, no individual may
receive a stock option covering more than 100,000 shares of Lockhart Class A
Common Stock in any year or be granted more than 100,000 shares of Lockhart
Class A Common Stock, in any combination of performance awards, restricted stock
or other stock-based awards that are subject to performance criteria in any
year.

The LTIP is to be administered by the Executive Personnel and Compensation
Committee (the "Committee"). Subject to the provisions of the LTIP, the
Committee has sole discretionary authority to interpret the LTIP and to
determine the type of awards to grant, when, if, and to whom awards are granted,
the number of shares covered by each award and the terms and conditions of the
award.

Options granted under the LTIP may be "Incentive Stock Options" ("ISOs"),
within the meaning of Section 422 of the Code, or Nonqualified Stock Options
("NQSOs"). The exercise price of the options will be determined by the Committee
when the options are granted, subject to a minimum price of the Fair Market
Value (as defined in the LTIP) of the Class A Common Stock on the date of grant
in the case of ISOs and a minimum price of 85% of the Fair Market value on the
date of grant in the case of NQSOs. In the discretion of the Committee, the
option exercise price may be paid in cash or in shares of Class A Common Stock
having a Fair Market Value on the date of exercise equal to the option exercise
price, or by delivering to Lockhart a copy of irrevocable instructions to a
stockbroker to deliver promptly to Lockhart an amount of sale or proceeds
sufficient to pay the exercise price. There is no current intention to grant
ISOs to any LTIP participant.

The LTIP permits the Committee to grant Class A Common Stock appreciation
rights ("SARs"). An SAR granted as an alternative or a supplement to a related
stock option will entitle its holder to be paid an amount equal to the Fair
Market Value of the Class A Common Stock subject to the SAR on the date of
exercise of the SAR less the exercise price of the related stock option, or such
other price as the Committee may determine under the LTIP for such stock option.
There is no current intention to grant SARs to any LTIP participant.

The Committee may grant awards of stock as restricted stock, bonus stock or
deferred stock. Shares of Class A Common Stock covered by a restricted stock
award will be issued to the recipient at the time the award is granted but will
be subject to forfeiture in the event continued employment and/or other
conditions established by the Committee at the time the award is granted are not
satisfied. There is no current intention to grant restricted stock awards to any
LTIP participant.

A performance award or a deferred stock award will provide for the future
payment of cash or the issuance of shares of Class A Common Stock to the
recipient if continued employment or other performance objectives established by
the Committee at the time of grant are attained. There is no current intention
to grant performance awards or deferred stock awards to any LTIP participant.

The performance objectives that must be attained to receive any award
subject to performance criteria shall be selected by the Committee and shall be
based on preestablished amounts of annual net income, operating income, cash
flow, return on assets, return on equity, return on capital or total stockholder
return. There are currently no such other written criteria established by the
Committee.

<PAGE>

Dividend equivalents may be granted that provide for current or accrued
value of dividends that may be paid in the future. Such dividend equivalents
shall be paid or distributed when accrued or shall be deemed to have been
reinvested in additional shares or awards, or otherwise reinvested. There is no
current intention to grant dividend equivalents to any LTIP participant. Stock
bonus awards, restricted stock awards and performance awards may, in the
discretion of the Committee, be settled in cash, on each date on which shares of
Class A Common Stock covered by the awards would otherwise have been delivered
or become unrestricted, in an amount equal to the Fair Market Value of such
shares on such date.

The LTIP may be amended, suspended or terminated by the Lockhart Board in
whole or in part at any time; provided that no such amendment, suspension or
termination of the LTIP may adversely affect the rights of or obligations to the
participants without such participants' consent, and any such amendment,
suspension or termination will be subject to the approval of Lockhart's
stockholders to the extent required by any federal or state law or regulation of
any stock exchange on which Class A Common Stock is listed.

<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

George H.T. Dudley, who serves as Co-Chairman of the Board of Directors and
Co-CEO of the Company, is a partner in the law firm Dudley, Topper and
Feuerzeig. Dudley, Topper and Feuerzeig renders legal services to the Company
and was paid fees of approximately $201,000 and $100,000 for such services by
the Company during the fiscal years ended December 31, 1996 and 1995,
respectively.

The Company has entered into an agreement to lease No. 10 Estate Thomas,
which is adjacent to Sugar Estate Park. No. 10 Estate Thomas consists of
approximately 2.64 acres zoned for business development and includes a Victorian
style residence, which sustained damage in Hurricane Marilyn. The Company
intends to repair the residence, converting it into office space, and to move
its principal executive offices into the new space. The lease agreement requires
the Company to pay monthly rent equal to the greater of $2,100 or one-half the
rent received by the Company from No. 44 Estate Thomas, which the Company
currently uses as its principal executive offices. No. 10 Estate Thomas is owned
by Gertrude L. Melchior, one of the Company's principal stockholders. See
"{{Principal Stockholders}}". George H.T. Dodley is the son of Mrs. Melchior.

Lisa S. Curreri is a member of the Board of Directors of the Company and a
principal of McLaughlin Arguin Curreri Realtors. McLaughlin Arguin Curreri
Realtors has provided real estate brokerage services to the Company from time to
time, and the Company expects to use such services in the future. All past and
any future brokerage services rendered by McLaughlin Arguin Curreri Realtors to
the Company have been and will be on terms consistent with the industry and
commensurate with those available from unaffiliated parties.

If the Maximum Offering is sold, the Company will use $525,000 of the last
one million dollars raised in this offering to repurchase up to approximately
80,769 shares of Class B Common Stock from certain Class B Stockholders for
$6.50 per share. See "{{Use of Proceeds}}". Specifically, the Company has agreed
to repurchase up to 1,538 shares for an aggregate purchase price of
approximately $10,000, 18,462 shares for an aggregate purchase price of
approximately $120,000, 6,923 shares for an aggregate purchase price of
approximately $45,000, 46,154 shares for an aggregate purchase price of
approximately $300,000, and 7,692 shares for an aggregate purchase price of
approximately $50,000 from Ronald S. Lockhart, Kaj H. Petersen, Herbert E.
Lockhart III, Beryl P. Haygood and Cassandra M. Flipper, respectively. Herbert
Lockhart is a member of the Company's Board of Directors. See "{{Management
- --Executive Officers and Directors}}". As of September 30, 1997, the Company
held an account receivable from Ronald Lockhart, Kaj Petersen and Herbert
Lockhart of approximately $12,250, $26,300 and $55,400, respectively. Ronald
Lockhart, Kaj Petersen and Herbert Lockhart have each agreed to use a portion of
the proceeds received from the Company for their Class B Common Stock to repay
their outstanding indebtedness to the Company, or to otherwise repay such
indebtedness within six months of commencement of this offering. Following this
offering, the Company does not intend to advance funds to its stockholders,
executive officers or directors. In any event, all future loans and advances to
such persons will be for a bona fide business purpose and approved by a majority
of the disinterested directors of the Company. In addition, material
transactions with the Company's executive officers, directors and 5%
stockholders will be on terms no less favorable than can be obtained from
unaffiliated third parties. See "Business--Investing and Financing Policies".

Richard E.W. Grant, President of PFC, is the beneficial owner of
approximately 29,250 shares of the Company's Class B Common Stock, which
represents less than one percent of such shares outstanding. Approximately
20,500 of such shares are held jointly by Mr. Grant and his wife, and the
remaining shares are held by Mrs. Grant. The Company intends to acquire PFC and
to retain Mr. Grant as an employee of the Company following the acquisition. See
"{{Business--Acquisition of PFC}}". As a shareholder of PFC, Mr. Grant and a
trust established by Mr. Grant will receive an aggregate of approximately
$187,500 from the Company for their PFC shares. George H.T. Dudley is Mr.
Grant's brother-in-law.

<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1997, and as
adjusted to reflect the sale of shares of Class A Common Stock by Lockhart in
this offering and excluding any shares of Class A Common Stock issuable upon the
exercise of Warrants by (i) each person known by Lockhart to be the beneficial
owner of more than 5% of any class of the Company's voting Common Stock, (ii)
the Named Executive Officers, and (iii) all of the Company's directors and
executive officers as a group. Except as otherwise indicated, the address of
each holder is the same as the Company. None of the persons listed in the table
beneficially owned any shares of Class A Common Stock as of September 30, 1997.
Unless otherwise noted, each holder has sole voting and investment power with
respect to all shares of stock listed as owned by such person.

Percent of Vote
Class B of All Classes of
Common Stock Common Stock
----------------- ----------------------
Minimum Maximum
Name of Beneficial Owner Number % Offering Offering(5)
------------------------ ------ --- -------- -----------
George H.T. Dudley (1)(6) 284,880 3.3% 3.2% 3.2%
Wesley S. Williams, Jr.(2)(6) 1,476,724 17.0% 16.8% 16.8%
John P. deJongh, Jr. 7,285 * * *
Etienne R. Bertrand 30,993 * * *
Kathleen P. Goldberg(3)(6) 1,253,761 14.5% 13.8% 13.7%
William H. Hastie(6) 618,501 7.1% 7.0% 7.0%
Herbert E. Lockhart, III(6) 70,325 * * *
Cassandra M. Flipper (4) 446,384 5.2% 5.2% 5.2%
Irma Corinne Lockhart 1,937,139 22.4% 22.1% 22.0%
Gertrude L. Melchior 1,963,585 22.7% 22.4% 22.3%
All Directors and executive
officers as a group (12 persons) 3,746,854 43.2% 42.7% 42.6%

- -------------
* Represents less than 1% of the class or vote, as the case may be.

(1) Includes 94,973 shares of Class B Common Stock held in trust. Shares not
held in trust are owned jointly by Mr. Dudley and his wife

(2) Includes 470,571 shares of Class B Common Stock held in trust. Shares not
held in trust are owned jointly by Mr. Williams and his wife.

(3) Includes 133,314 shares of Class B Common Stock held in trust.

(4) Includes 379,299 shares of Class B Common Stock held in trust.

(5) If the Maximum Offering is sold, the Company will use a portion of the net
proceeds to repurchase shares of Class B Common Stock from certain Class B
Stockholders. See "{{Use of Proceeds}}" and "{{Certain Relationships and
Related Transactions}}". The information in the table for the Maximum
Offering reflects the Company's repurchase of 6,923 and 7,692 shares of
Class B Common Stock from Herbert Lockhart and Cassandra Flipper,
respectively.

(6) George H.T. Dudley, Kathleen P. Goldberg, William H. Hastie and Herbert E.
Lockhart III are all first cousins of one another. See "{{Management}}".

<PAGE>

PLAN OF DISTRIBUTION

The Company is offering up to 2,000,000 Units at a purchase price of $6.50
per Unit. Each Unit consists of one share of Class A Common Stock and one
Warrant. Each Warrant is exercisable for a period of five years beginning one
year from the date of this Prospectus and entitles the holder to purchase
one-tenth of one share of Class A Common Stock for $9.75 per share. The Units
will be sold on a "best efforts, all or none" basis with respect to the Minimum
Offering and on a "best efforts" basis as to the remaining 846,154 Units. The
Minimum Offering must be sold, if any Units are to be sold, within one year from
the date of this Prospectus. Shares of Class A Common Stock and the Warrants may
be transferred separately after their issuance.

It is the intention of the Company to offer and sell the Units by
contacting prospective investors through appropriate Internet, newspaper and
magazine advertisements and electronic copies of this Prospectus will be
available to prospective investors through the Internet. Copies of this
Prospectus, including appendices, are available on the World Wide Web at
http://lockhart.com, and can also be obtained by contacting the Company at (340)
776-1900. Units may be offered by the Company's officers or directors on a
selective basis, and any such offers and sales, as well as the processing of
Subscription Agreements, will comply with Rule 3a4-1 of the Securities Exchange
Act of 1934, as amended. This offering is not currently open to residents of
Alabama, Alaska, Arizona, Arkansas, Florida, Idaho, Illinois, Iowa, Kansas,
Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota,
Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, North
Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, South Dakota, Tennessee,
Texas, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming, or of
any country other than the United States and its territories. Subscriptions
received from residents of any such state or foreign country will be promptly
returned by the Company; provided, however, that if there is sufficient interest
from one or more of such states, the Company may proceed with registration or
qualification in such state or states. In addition, the Company reserves the
right to offer and sell the Units on a limited basis in one or more states or
foreign countries where an exemption from registration or qualification in such
state or foreign country is available.

No securities are to be offered for the account of any existing security
holder.

Subscribers must execute a Subscription Agreement, which is attached hereto
as Appendix A. The minimum purchase is 100 Units. The Company will review each
Subscription Agreement to assure completeness and compliance with the terms of
this offer, return rejected subscriptions to the prospective investor, and
confirm accepted subscriptions. The Company reserves the right to reject any
subscription for Units in its entirety or to allocate units among prospective
purchasers. In this regard, the Company intends to apply for listing of the
Class A Common Stock on the Nasdaq SmallCap Market if the Minimum Offering is
sold. One of the listing criteria for the Nasdaq SmallCap Market is a minimum of
300 stockholders. Therefore, although there is no prescribed maximum number of
Units which can be purchased by a single subscriber, the Company may partially
reject certain subscriptions to ensure that there are at least 300 stockholders
when the Minimum Offering is sold. If any subscription is rejected, in whole or
in part, funds representing the portion of the subscription rejected by the
Company will be returned to the applicable prospective purchaser with interest.

<PAGE>

All funds received with respect to the Minimum Offering, will be deposited
in an escrow account with The Chase Manhattan Bank ("Chase"), in its capacity as
Escrow Agent, pursuant to the terms of an escrow agreement entered into between
the Company, Chase and ACS Financial & Securities Services ("ACS"). ACS has
agreed to collect subscriptions and forward them to the Company for processing
and to provide certain record-keeping functions for this offering. In the event
that the Minimum Offering is not sold within the permitted time period, then all
funds received by Chase will be refunded promptly to the subscribers, in full,
with interest.

Certificates representing shares of Class A Common Stock and certificates
representing Warrants purchased will be issued to purchasers only if the
proceeds from the sale of the Minimum Offering are released from escrow. Until
the certificates representing shares of Class A Common Stock are delivered to
the purchasers thereof, such purchasers, if any, will be deemed subscribers
only, and not stockholders. Warrant certificates will not entitle holders to any
rights as a stockholder of the Company. The funds in escrow will be held for the
benefit of those subscribers until released to the Company. All funds received
after the Minimum Offering is sold will not be placed in escrow, but will be
sent directly to the Company for immediate use by the Company.

Prior to this offering, there has been no public market for the Class A
Common Stock. The initial public offering price was determined by the Company.
In determining the initial public offering price for the Class A Common Stock,
the Company calculated the net asset value of Lockhart on a per share basis
using the most recent appraisals available for each operating property and for
its inventory of undeveloped land. As part of this calculation, the Company
adjusted its capital structure for the Maximum Offering. No value was attributed
to the Warrants.

The Company considered adjusted net asset value per share in relation to
the market valuation of publicly-held companies in similar businesses. Unlike
such companies, whose market value commonly exceeds net asset value based on
their property holdings, Lockhart in this, its initial public offering, believed
it prudent to approach the pricing of its securities more conservatively.
Accordingly, the Company has set the offering price for the Class A Common Stock
based solely on the net asset value of its real estate, with no upward
adjustment for other common indicia of value, such as (i) estimates of future
business potential and earnings prospects -- in this case, based on the
Company's historic businesses together with that of PFC after achieving the
Minimum Offering -- (ii) the increasing value of the Company's real estate based
on development projects in progress, and (iii) Lockhart's more than century-long
existence.

Although it is the Company's intention to develop a public market for its
Class A Common Stock by soliciting broker-dealers who are members of the
National Association of Securities Dealers (the "NASD") to make a market in the
Company's Class A Common Stock, to date the Company has not entered into any
arrangements, commitments or understandings with any persons with respect to the
creation of a public market for its Class A Common Stock. The Company plans to
seek the support of NASD member firms which are recognized market makers with
the intention of obtaining their assistance with the creation of a viable market
in the Company's securities for the benefit of its stockholders. If the Minimum
Offering is sold, the Company intends to apply for listing on the Nasdaq
SmallCap Market. However, there can be no assurance that the Company will be
accepted for listing if it applies.

<PAGE>

DESCRIPTION OF CAPITAL STOCK

General

The Company has the authority to issue 49,000,000 shares of common stock,
par value $0.01 per share, of which 40,000,000 shares are designated Class A
Common Stock (the "Class A Common Stock") and 9,000,000 shares are designated
Class B Common Stock, par value $0.01 per share (the "Class B Common Stock").
The Class A Common Stock and the Class B Common Stock are sometimes referred to
collectively as the "Common Stock". The Company is also authorized to issue
1,000,000 shares of Preferred Stock, par value $0.01 per share (the "Preferred
Stock").

Common Stock

Except as otherwise set forth below or as otherwise required by law, the
rights and privileges of each class of the Common Stock are substantially
identical in all material respects, including the right of the members of a
class of Common Stock to participate ratably in offers by the Company to
repurchase shares of Common Stock that are directed to all of the holders of any
other class of the Common Stock. No class of Common Stock has preemptive rights.

Voting Rights

Each outstanding share of Class A Common Stock is entitled to vote on each
matter on which the stockholders of the Company are entitled to vote, and each
holder of Class A Common Stock is entitled to one vote for each share of such
stock held by such holder. Each outstanding share of Class B Common Stock is
entitled to vote on each matter on which the stockholders of the Company are
entitled to vote, and each holder of Class B Common Stock is entitled to ten
votes for each share of such stock held by such holder; provided, however, that
if the aggregate number of shares of Class B Common Stock issued and outstanding
no longer represent at least 75% of the combined voting power of the total
issued and outstanding shares of Common Stock, then each holder of Class B
Common Stock shall be entitled to one vote for each share of Class B Common
Stock. The holders of the Common Stock entitled to vote on any matter vote
together as a single class on all such matters. The stockholders of the Company
are not entitled to cumulate their votes in any election of the directors of the
Company.

Distributions

The Board of Directors of the Company may cause distributions to be paid to
holders of shares of Common Stock out of funds legally available for the payment
of distributions, provided, however, that the Board of Directors may declare the
payment of cash distributions of up to $.0425 per annum per share of Class B
Common Stock to the holders of Class B Common Stock without declaring or paying
any distributions on Class A Common Stock. The right of the Board of Directors
to declare a separate distribution payable only on the Class B Common Stock
shall cease once the Board of Directors shall declare a distribution payable to
both classes of Common Stock. See "Distribution Policy". Thereafter, any
distribution on the Common Stock shall be payable on shares of Class A Common
Stock and Class B Common Stock share and share alike; provided that in the case
of distributions payable in shares of Common Stock of the Company, or options,
warrants or rights to acquire shares of such Common Stock or securities
convertible into or exchangeable for shares of such Common Stock, the shares,
options, warrants, rights or securities so payable shall be payable in shares
of, or options, warrants or rights to acquire or securities convertible into or
exchangeable for, Class A Common Stock.

<PAGE>

Liquidation Rights

In the event of any dissolution, liquidation or winding up of the affairs
of the Company, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the Company, the remaining assets
and funds of the Company, if any, shall be divided among and paid ratably to the
holders of Class A Common Stock and the holders of Class B Common Stock
provided, however, that so long as distributions are not being paid on Class A
Common Stock, the holders of Class A Common Stock shall be entitled to
preferential rights in the event of liquidation, dissolution or winding up of
the Company with each holder of Class A Common Stock entitled to receive $6.50
per share before any sum shall be paid to or any assets distributed among the
holders of Class B Common Stock. A merger or consolidation of the Company with
or into any other corporation or a sale or conveyance of all or any part of the
assets of the Company (which shall not in fact result in the liquidation of the
Company and the distribution of assets to stockholders) shall not be deemed to
be a voluntary or involuntary liquidation or dissolution or winding up of the
Company.

Conversion Rights

Each and every share of Class B Common Stock is convertible into Class A
Common Stock at any time at the option of the holder. Such conversion shall be
on a share-for-share basis, one share of Class A Common Stock for each share of
Class B Common Stock so converted. Shares of Class A Common Stock are not
convertible.

Each share of Class B Common Stock shall convert automatically into one
fully paid and non-assessable share of Class A Common Stock upon its sale,
assignment, gift or other transfer to a party or entity other than a Permitted
Transferee. A "Permitted Transferee" of a Class B Stockholder shall be: (i) any
lineal descendant of Alfred H. Lockhart and Herbert E. Lockhart (including any
adopted child); (ii) any individual designated as a Permitted Transferee by a
vote of the Board of Directors upon the recommendation of the Executive
Committee of the Board of Directors; (iii) any lineal descendant (including any
adopted child) of a previously admitted Class B Stockholder (the individuals
described in (i), (ii) and (iii) hereafter are individually referred to as a
"Founding Family Member" and collectively the "Founding Family Members"); (iv)
any trust established and maintained principally for the benefit of one or more
Founding Family Members and where one or more Founding Family Members has a
general or special testamentary power of appointment or general or special
non-testamentary power of appointment limited to any Permitted Transferee or
Permitted Transferees thereof; (v) any corporation, partnership, limited
liability company, limited liability partnership, private foundation or other
entity where (A) the majority of the board of directors or other managing body
are comprised of Founding Family Members or (B) all the beneficial ownership, or
ownership of equity securities of such entity representing voting control over
such entity, is held by Founding Family Members and/or any Permitted Transferee
or Permitted Transferees thereof; provided, however, that if (x) the majority of
the board of the directors of other managing body of such entity are not
comprised of Founding Family Members and (y) the Class B stockholder who made
such transfer, and Permitted Transferees thereof, cease, for whatever reason, to
hold all of the beneficial ownership, or ownership of equity securities
representing voting control, of such corporation, partnership, limited liability
company, limited liability partnership, private foundation or other entity, then
any and all shares of Class B Common Stock owned by such corporation,
partnership, limited liability company, limited liability partnership, private
foundation or other entity shall be converted automatically, without further
action by or on behalf of any person, into shares of Class A Common Stock and
such corporation, partnership, limited liability company, limited liability
partnership, private foundation or other entity shall no longer be a Class B
Stockholder.

<PAGE>

Any Class B Stockholder may pledge shares of Class B Common Stock owned by
such person to a pledgee pursuant to a bona fide pledge of such shares as
collateral security for indebtedness due to the pledgee, provided that such
shares may not be transferred to or registered in the name of the pledgee unless
such pledgee is a Permitted Transferee. In the event of foreclosure or other
similar action by the pledgee (other than a pledgee who is a Permitted
Transferee), such pledged shares of Class B Common Stock shall be converted
automatically, without further action by or on behalf of any person, into shares
of Class A Common Stock upon such foreclosure; provided, however, that if within
ten business days after such foreclosure or similar event such converted shares
are returned to the pledgor or transferred to a Permitted Transferee of the
pledgor, such shares shall be converted automatically, without any act or deed
on the part of the Company or any other person, into the same number of shares
of Class B Common Stock. The foregoing automatic conversion provisions shall not
be applicable to any transfer of shares of Class B Common Stock by operation of
law upon incompetence, death, dissolution or bankruptcy of any Class B
Stockholder to an executor, guardian or trustee, respectively, of such Class B
Stockholder but only if the beneficial ownership of such shares continues to be
held by one or more Permitted Transferees.

Mergers and Consolidations

In the event of a merger, consolidation or other business combination of
the Company with or into another entity (whether or not the Company is the
surviving entity), or in the event of the dissolution of the Company, provision
shall be made so that the holders of each class of Common Stock will be entitled
to receive the same amount and form of consideration per share as the per share
consideration, if any, received by holders of the other classes of Common Stock
in such merger, consolidation, combination or dissolution; provided, however,
that in connection with any such merger, consolidation or business combination
in which shares of capital stock are distributed, such shares may differ as to
voting rights to the extent and only to the extent that the voting rights of the
Class A Common Stock and Class B Common Stock differ as currently provided; and
provided further, however, that if such shares differ as to voting rights, the
shares having superior voting rights shall be subject to conversion provisions
that are no more or less favorable to the holders of such shares than those
provided with respect to the Class B Common Stock.

Preferred Stock

None of the Company's 1,000,000 shares of authorized Preferred Stock is
outstanding. The Company's Amended and Restated Articles of Incorporation
authorize the Board of Directors, without any further action by the
stockholders, to issue the Preferred Stock in one or more series, to establish
from time to time the number of shares to be included in each series and to fix
the designations, powers, preferences and rights of the shares of each series
and the qualifications, limitations or restrictions thereof. Although the
ability of the Board of Directors to designate and issue shares of the Preferred
Stock provides desirable flexibility, including the ability to engage in future
public offerings to raise additional capital, the issuance of shares of the
Preferred Stock may have adverse effects on the holders of Common Stock,
including restrictions on dividends on the Common Stock if dividends on shares
of the Preferred Stock have not been paid; dilution of voting power of the
Common Stock to the extent the shares of the Preferred Stock have voting rights;
or deferral of participation in the Company's assets upon liquidation until
satisfaction of any liquidation preference granted to holders of shares of the
Preferred Stock. In addition, issuance of shares of the Preferred Stock could
make it more difficult for a third party to acquire a majority of the
outstanding voting stock and accordingly may be used as an "anti-takeover"
device. The Board of Directors, however, currently does not contemplate the
issuance of any shares of the Preferred Stock.

Certain Anti-Takeover Provisions

Special meetings of stockholders may be called by the Company's Board of
Directors or the Executive Committee. Except as otherwise required by law,
stockholders, in their capacity as such, are not entitled to request or call a
special meeting of stockholders. In addition, stockholders of the Company are
required to provide advance notice of nominations of directors to be made at,
and of business proposed to be brought before, a meeting of stockholders. The
failure to deliver proper notice within the periods specified in the Company's
Amended and Restated Bylaws will result in the denial to the stockholder of the
right to make such nominations or propose such action at the meeting.

<PAGE>

Summary of the Reinvestment Plan

The Company has adopted the Lockhart Caribbean Corporation Dividend
Reinvestment Plan (the "Reinvestment Plan") pursuant to which holders of Common
Stock may elect to have up to the full amount of any cash distributions from the
Company reinvested in additional shares of Class A Common Stock of the Company.
Since no cash distributions will initially be paid to holders of Class A Common
Stock, the Reinvestment Plan is not currently open to holders of Class A Common
Stock. Prior to commencement of this offering, 18 holders of Class B Common
Stock have elected to participate in the Reinvestment Plan (the "Current
Participants"). Holders of Class B Common Stock who have not elected to
participate in the Reinvestment Plan as well as any person who becomes a holder
of Class A Common Stock through this offering or otherwise may purchase shares
of Class A Common Stock through the Reinvestment Plan only after receipt of a
separate prospectus relating solely to the Reinvestment Plan (a "DRIP
Prospectus").

An independent agent (the "Reinvestment Agent"), which currently is the
Company, will act on behalf of the participants in the Reinvestment Plan (the
"Participants"). Prior to the time that the offering terminates, the
Reinvestment Agent will invest all cash distributions attributable to shares of
Class A Common Stock or Class B Common Stock owned by Participants in additional
shares of Class A Common Stock of the Company at the initial public offering
price per share. Thereafter, and until the Class A Common Stock is listed for
trading on a national securities exchange or quoted on an automated quotation
system, the price per share of Class A Common Stock will be determined by
quarterly appraisal updates performed by the Company based on a review of the
existing appraisal and lease of each property, focusing on a re-examination of
the capitalization rate applied to the rental stream to be derived from each
such property and a review of the fair market value of the Company's undeveloped
properties. Following consummation of the acquisition of PFC, the fair market
value of PFC operations will be taken into account in determining the price per
share of Class A Common Stock.

For the years ended December 31, 1996, 1995 and 1994, the Company issued
4,600, 4,360 and 3,930 shares of common stock, respectively, under its dividend
reinvestment plan to the Current Participants. The number of shares of Class A
Common Stock issued to the Current Participants under the Reinvestment Plan for
the year ended December 31, 1997 is anticipated to be approximately 29,965.

If distributions are paid to holders of Class A Common Stock, the Company
would anticipate filing a registration statement containing a DRIP Prospectus,
holders of Class B Common Stock who have not selected to participate in the
Reinvestment Plan as well as holders of Class A Common Stock would be offered an
opportunity to become Participants through the DRIP Prospectus, and shares of
Class A Common Stock would be available to Participants from any shares which
the Company so registers. Until such time, however, shares of Class A Common
Stock purchased through the Reinvestment Plan by the Current Participants will
be "restricted" securities withing the meaning of Rule 144 under the Securities
Act and may only be sold in the public market pursuant to an effective
registration statement under the Securities Act or pursuant to an applicable
exemption from registration. For more detailed information regarding Rule 144,
see "{{Shares Eligible For Future Sale}}".

<PAGE>

DESCRIPTION OF WARRANTS

Each Warrant will entitle the holder thereof to purchase one-tenth of one
share of Class A Common Stock. The exercise price for each Warrant is $9.75 per
whole share of Class A Common Stock, and such Warrants may be exercised
beginning one year following the date of this Prospectus for a period of five
years (the "Warrant Exercise Period"). The Warrants will be issued pursuant to a
Warrant Agreement (the "Warrant Agreement"). Shares of Class A Common Stock and
the Warrants will be freely and separately transferable after issuance. No
fractional shares of Class A Common Stock will be issued.

In order to protect Warrant holders against dilution, the Warrant Agreement
provides that upon the occurrence of certain events, the exercise price of the
Warrants and the number of shares of Class A Common Stock which may be purchased
upon the exercise of Warrants will be adjusted. The events generating
adjustments include dividends paid in shares of Common Stock, split-ups,
combinations and reclassifications, but do not include the sale of shares of
Class A Common Stock at less than the exercise price or cash distributions
whether paid out of capital or otherwise. Provision is also made to protect
against dilution in the event of merger, consolidation or disposition of all or
substantially all of the Company's assets. Warrant holders do not have any
rights of stockholders and in the event of a partial or total liquidation,
dissolution or winding up of the Company, holders of Warrants will not be
entitled to participate in a distribution of Company assets unless such Warrants
have been exercised. Warrants will be dated and issued in certificate form to
purchasers of Units, and they may be exercised during the Warrant Exercise
Period by completing and executing the form on the back side of the Warrant
certificate.

<PAGE>

FEDERAL INCOME TAX CONSEQUENCES

The following summary of material federal income tax considerations
regarding the Company and the offering is based on current law, is for general
information only and is not tax advice. This discussion does not purport to deal
with all aspects of taxation that may be relevant to particular stockholders in
light of their personal investment or tax circumstances, or to certain types of
stockholders subject to special treatment under the tax laws, including without
limitation, certain financial institutions, life insurance companies, dealers in
securities or currencies, stockholders holding shares of Class A Common Stock as
part of a conversion transaction, as part of a hedge or hedging transaction, or
as a position in a straddle for tax purposes or foreign corporations or
partnerships and persons who are not citizens or residents of the United States
or the U.S. Virgin Islands. In addition, the summary below does not consider the
effect of any foreign, state, local or other tax laws that may be applicable to
stockholders.

It is the opinion of Tucker, Flyer & Lewis ("TF&L") that the disclosure set
forth in this Section, to the extent such information constitutes matters of
law, summaries of legal matters or legal conclusions, is accurate in all
material respects. The information in this Section is based on the U.S. Internal
Revenue Code of 1986, as amended (the "Code"), current, temporary and proposed
Treasury Regulations promulgated thereunder, the legislative history of the Code
and court decisions, all as of the date hereof. No assurance can be given that
future legislation, Treasury Regulations and/or court decisions will not
adversely affect existing interpretations thereof. Any such change could apply
retroactively to transactions preceding the date of the change.

EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP
AND SALE OF THE CLASS A COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.

Taxation of the Company

Although the U.S. Virgin Islands is a taxing jurisdiction separate from the
United States, the Code has, in effect, been adopted by the U.S. Virgin Islands
as the controlling taxing statute, with the words "Virgin Islands" substituted
for the words "United States" where appropriate (commonly referred to as a
"mirror image"). A corporation organized under the laws of the U.S. Virgin
Islands is generally taxed at a 35% marginal rate on its worldwide income,
subject to reduction by foreign tax credits, if available by the U.S. Virgin
Islands. Further, Section 1274(b) of the Tax Reform Act of 1986 authorized the
U.S. Virgin Islands to enact non-discriminatory local income taxes. Corporations
also are generally subject to property, gross receipts, excise and stamp taxes
in the U.S. Virgin Islands.

<PAGE>

Taxation of United States Stockholders (other than U.S. Virgin Island
Stockholders)

Taxation of United States Citizen or Resident Alien Stockholders

To the extent an individual is a citizen or resident alien of the United
States (other than a bona fide resident of the U.S. Virgin Islands) (a "U.S.
Individual Stockholder") and has U.S. Virgin Islands source income, such
individual must file a complete income tax return with both the United States
Internal Revenue Service (the "IRS") and the U.S. Virgin Islands Bureau of
Internal Revenue. IRS Form 8689, which allocates a taxpayer's total income taxes
between the United States and the Virgin Islands, must also be attached. In such
circumstances, TF&L is of the opinion that a U.S. Individual Stockholder
effectively reports the income in both jurisdictions pays income tax to the U.S.
Virgin Islands on the U.S. Virgin Islands source income and is allowed a credit
for that tax against such person's U.S. federal income tax liability.

Generally, amounts received as dividends from corporations incorporated in
the U.S. Virgin Islands would constitute U.S. Virgin Islands source income. Such
dividends would be subject to a Virgin Islands withholding tax of 30% unless
such U.S. Individual Stockholder files a form claiming that such distribution is
income "effectively connected" with a U.S. Virgin Islands trade or business of
the stockholder. Although the Company does not currently contemplate making any
distributions with respect to the Class A Common Stock, if a dividend were
distributed, TF&L's opinion is that a U.S. Individual Stockholder would be
required to report the income to both the IRS and the U.S. Virgin Islands as
described above.

Any distributions in excess of current or accumulated earnings and profits
of the Company would not be taxable to a U.S. Individual Stockholders to the
extent such distributions did not exceed the adjusted basis of such
stockholder's Class A Common Stock, but rather would reduce the adjusted basis
of such stock. To the extent that any distributions exceeded the adjusted basis
of a U.S. Individual Stockholder's Class A Common Stock, such distribution would
give rise to gain from the sale or exchange of stock, the tax treatment of which
is described below. For distributions occurring prior to January 1, 1999, a
withholding tax of 30% would be imposed unless such U.S. Individual Stockholder
filed a form claiming that such distribution was income "effectively connected"
with a U.S. Virgin Islands trade or business. Distributions which occur on or
after January 1, 1999 may not be subject to a withholding tax pursuant to the
issuance by the IRS of new regulations under Section 1441 of the Code.

In the opinion of TF&L, so long as the sale or exchange by a U.S.
Individual Stockholder of Class A Common Stock does not constitute the sale of a
"U.S. Virgin Islands real property interest," the income or loss from such sale
or exchange generally will not be U.S. Virgin Islands source income, and such
individual would not need to report such income or loss to the U.S. Virgin
Islands. Such income or loss would, however, be reported to the IRS on such
person's U.S. income tax return. Shares will not constitute a U.S. Virgin
Islands real property interest to the extent shares are "regularly traded" (as
defined by applicable Treasury regulations) on an established stock exchange and
the selling stockholder holds 5% or less (after applying certain constructive
ownership rules) of the shares of Class A Common Stock during the shorter of (i)
the period during which the stockholder held such shares or (ii) the 5-year
period ending on the date of the disposition of such shares. However, to the
extent the Class A Common Stock is either a U.S. Virgin Island real property
interest or the proceeds from the sale or exchange are effectively connected
with a U.S. Virgin Islands trade or business of the stockholder, TF&L is of the
opinion that the income would be U.S. Virgin Islands source income, and such
person would be required to file a return in and pay income tax to the U.S.
Virgin Islands. Such income would also be reported on that person's U.S. income
tax return. Furthermore, with respect to sales or exchanges of U.S. Virgin
Islands real property interests, a purchaser (or his agent) of such shares
generally would be required to withhold a tax equal to 10% of the gross amount
realized and remit such amount to the U.S. Virgin Islands Bureau of Internal
Revenue. Redemptions (or repurchases) of a U.S. Individual Stockholder's
interest by the Company will be subject to a withholding tax of 30% if such
redemption occurs prior to January 1, 1999. Redemptions occurring on or after
January 1, 1999 may not be subject to a withholding tax pursuant to the issuance
by the IRS of new regulations under Section 1441 of the Code.

71
<PAGE>

Taxation of U.S. Non-Individual Stockholders

Generally, amounts received as dividends from corporations incorporated in
the U.S. Virgin Islands by a United States non-Individual Stockholder such as a
corporation, trust or estate (collectively, "U.S. Non-Individual Stockholder")
would constitute U.S. Virgin Islands source income. Such dividends ordinarily
would be subject to a Virgin Islands withholding tax on a gross basis (that is,
without allowance for deductions) at a 30% rate, unless such U.S. Non-Individual
Stockholder files a form claiming that such distribution is income "effectively
connected" with a U.S. Virgin Islands trade or business of the stockholder.
Dividends that are effectively connected with such a trade or business will be
subject to tax on a net basis (that is, after allowance for deductions) at
graduated rates, in the same manner as U.S. Virgin Islands Stockholders, and so
are not subject to withholding. TF&L's opinion is that such income would,
however, be reported on the person's U.S. income tax return

Any distributions in excess of current or accumulated earnings and profits
of the Company would not be taxable to a U.S. Non-Individual Stockholder to the
extent such distribution did not exceed the adjusted basis of the stockholder's
Class A Common Stock, but rather would reduce the adjusted basis of such stock.
To the extent that any distributions exceed the adjusted basis of Class A Common
Stock in the hands of a U.S. Non-Individual Stockholder, such distribution would
give rise to gain from the sale or exchange of stock, the tax treatment of which
is described below. For distributions occurring prior to January 1, 1999, a
withholding tax of 30% would be imposed unless such U.S. Non-Individual
Stockholder filed a form claiming that such distribution was income "effectively
connected" with a U.S. Virgin Islands trade or business of the stockholder.
Distributions which occur on or after January 1, 1999 may not be subject to a
withholding tax pursuant to the issuance by the IRS of new regulations under
Section 1441 of the Code.

In the opinion of TF&L, so long as the sale or exchange by a U.S.
Non-Individual Stockholder of Class A Common Stock does not constitute the sale
of a "U.S. Virgin Islands real property interest," the income or loss from such
sale or exchange generally will not be U.S. Virgin Islands source income, and
such stockholder would not need to report such income or loss to the U.S. Virgin
Islands. Such income or loss would, however, be reported to the IRS on such
stockholder's U.S. income tax return. Shares will not constitute a U.S. Virgin
Islands real property interest to the extent shares are "regularly traded" (as
defined by applicable Treasury regulations) on an established stock exchange and
the selling stockholder holds 5% or less (after applying certain constructive
ownership rules) of the shares of Class A Common Stock during the shorter of (i)
the period during which the stockholder held such shares or (ii) the 5-year
period ending on the date of the disposition of such shares. However, to the
extent the Class A shares is either a U.S. Virgin Island real property interest
or such proceeds of the sale or exchange are effectively connected with a U.S.
Virgin Islands trade or business of the stockholder, TF&L is of the opinion that
the income would be U.S. Virgin Islands income and such person would be required
to file a return in the U.S. Virgin Islands. Such income would also be reported
on that person's U.S. income tax return. Furthermore, with respect to sales or
exchanges of U.S. Virgin Islands real property interests, a purchaser (or his
agent) of such shares generally would be required to withhold a tax equal to 10%
of the gross amount realized and remit such amount to the U.S. Virgin Islands
Bureau of Internal Revenue. Redemptions (or repurchases) of a U.S.
Non-Individual Stockholder's interest by the Company will be subject to a
withholding tax of 30% if such redemption occurs prior to January 1, 1999.
Redemptions occurring on or after January 1, 1999 may not be subject to a
withholding tax pursuant to the issuance by the IRS of new regulations under
Section 1441 of the Code.

<PAGE>

Amounts treated as "effectively connected" with a U.S. Virgin Islands trade
or business of the stockholder which are received by a U.S. Non-Individual
Stockholder that is a corporation may also be subject to an additional branch
profits tax at a 30% rate.

Taxation of U.S. Virgin Island Stockholders

As used herein, the term "U.S. Virgin Island Stockholder" means a holder of
Class A Common Stock who (for U.S. Virgin Island income tax purposes) is (i) an
individual who is a bona fide resident of the U.S. Virgin Islands, (ii) a
corporation or other entity organized in or under the laws of the U.S. Virgin
Islands, or (iii) a U.S. Virgin Islands estate or trust. U.S. Virgin Island
Stockholders report and pay income tax on their worldwide incomes to the U.S.
Virgin Islands. Such reporting and payment satisfies their United States
reporting and payment obligations.

Although the Company does not currently contemplate making any
distributions with respect to the Class A Common Stock, such a distribution
would be taxable as a dividend to the extent such distribution was made out of
current or accumulated earnings and profits. Such a dividend would be taxable as
ordinary income. Corporate stockholders would be eligible for the dividends
received deduction.

To the extent that the Company were to make a distribution in excess of
current and accumulated earnings and profits, such a distribution would be
treated first as a tax-free return of capital to the U.S. Virgin Islands
Stockholder, reducing the tax basis of such stockholder's shares of Class A
Common Stock by the amount of the distribution (but not below zero), with
distributions in excess of such stockholder's tax basis taxable as capital gains
(provided that such shares have been held as a capital asset).

Any distributions made by the Company (to the extent they did not
constitute a return of capital) generally would be treated as investment income
for purposes of computing the investment income limitation on deducting
investment interest. Gain arising from the disposition of Class A Common Stock
would be treated as investment income unless the stockholder elects to reduce
the amount treated as investment income so as to have such stockholder's total
net capital gain be eligible for varying maximum capital gains rates (rate
dependent on the length of holding period).

Any distributions made by the Company or gains arising from the sale or
exchange of Class A Common Stock would not be treated as passive activity
income, and, as a result, a U.S. Virgin Islands Stockholder generally would not
be able to apply any "passive losses" against such income or gain.

Upon any sale or other disposition of Class A Common Stock, a U.S. Virgin
Islands Stockholder will recognize gain or loss in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition and (ii) the holder's
adjusted basis in such shares of Class A Common Stock for tax purposes. Such
gain or loss will be capital gain or loss if the shares have been held by the
U.S. Virgin Islands Stockholder as a capital asset, and will be long-term gain
or loss if such shares have been held for more than one year.

Backup Withholding

If the Company makes distributions which are treated as dividends, the
Company will report to its Virgin Island Stockholders and to the Virgin Island
Bureau of Internal Revenue the amount of dividends paid during each calendar
year, and the amount of tax withheld, if any, with respect thereto. Under the
backup withholding rules, a stockholder may be subject to backup withholding at
applicable rates with respect to dividends paid unless such stockholder (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A U.S.
Virgin Islands Stockholder that does not provide the Company with its correct
taxpayer identification number may also be subject to penalties imposed by the
Virgin Islands Bureau of Internal Revenue. Any amount paid as backup withholding
will be credited against the stockholder's income tax liability.

<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon the completion of the offering, Lockhart will have 2,000,000 shares of
Class A Common Stock outstanding (assuming the Maximum Offering is sold and
assuming further that, prior to such time, there is no conversion of Class B
Common Stock into shares of Class A Common Stock) and 8,589,658 shares of Class
B Common Stock outstanding (assuming that no shares of Class B Common Stock are
converted into Class A Common Stock prior to the offering and assuming further
that 80,769 shares of Class B Common Stock are redeemed by the Company with a
portion of the proceeds from the offering). There will be an additional 200,000
shares of Class A Common Stock outstanding if all of the Warrants are exercised.
All of the shares of Class A Common Stock sold in the offering or issuable upon
exercise of the Warrants will be freely transferable and tradeable without
restriction or further registration under the Securities Act, except for any
shares purchased by an "affiliate," as defined below, of Lockhart, which will be
subject to the resale limitations of Rule 144 adopted under the Securities Act.
The shares of Class B Common Stock held by Lockhart's existing stockholders are
"restricted" securities within the meaning of Rule 144 and may only be sold in
the public market pursuant to an effective registration statement under the
Securities Act or pursuant to an applicable exemption from registration,
including Rule 144.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has been deemed to have
beneficially owned shares of an issuer for at least one year, including an
"affiliate," is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the then outstanding number of
shares of such class or the average trading volume in composite trading in all
national securities exchanges during the four calendar weeks preceding the
filing of the required notice of such sale, provided that such issuer has been a
reporting Company for at least 90 days. A person (or persons whose shares are
required to be aggregated) who is not deemed an affiliate of an issuer and who
has beneficially owned shares for at least two years is entitled to sell such
shares under Rule 144 without regard to the volume limitations described above.
Affiliates continue to be subject to such limitations. As defined in Rule 144,
an "affiliate" of an issuer is a person that directly or indirectly, through one
or more intermediaries, controls or is controlled by, or is under common control
with, such issuer.

The shares of the Company's Class B Common Stock are convertible into
shares of Class A Common Stock and, following the conversion of such shares,
approximately 8,457,061 of the aggregate shares of Class A Common Stock owned by
the Class B Stockholders upon conversion of their shares of Class B Common Stock
would be eligible for sale pursuant to the provisions of Rule 144 under the
Securities Act. The Class B Stockholders have agreed that, subject to certain
limited exceptions, during the period beginning from the date of this Prospectus
and continuing to and including the date six months after the date of this
Prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any securities of the Company which are substantially similar to the shares of
Class A Common Stock or which are convertible or exchangeable into securities
which are substantially similar to the shares of Class A Common Stock. In
addition, the Company's executive officers and directors as well as beneficial
owners of 5% or more of the Class B Common Stock have agreed that, subject to
certain limited exceptions, beginning from the date of this Prospectus and
continuing to and including the date two years after the date of this
Prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any securities of the Company which are substantially similar to the shares of
Class A Common Stock or which are convertible or exchangeable into securities
which are substantially similar to the shares of Class A Common Stock. Following
the six-month and two-year periods, no assurance can be given that a Class B
Stockholder will not decide, based upon then prevailing market and other
conditions, to convert his or her Class B Common Stock to Class A Common Stock
and to dispose of all or a portion of such stock pursuant to the provisions of
Rule 144 under the Securities Act, subject to any applicable volume limitations
of Rule 144.

Prior to the offering, there has been no established market for the Class A
Common Stock, and no predictions can be made about the effect, if any, that
market sales of shares of Class A Common Stock or the availability of such
shares for sale will have on the market price prevailing from time to time.
Nevertheless, sales of substantial amounts of Class A Common Stock in the public
market may have an adverse impact on the market for the shares of Class A Common
Stock offered hereby.

<PAGE>
SUPPLEMENTAL SALES MATERIAL

Units are being offered only through this Prospectus. In addition to this
Prospectus, the Company may use certain sales materials in connection with this
offering, although only when accompanied or preceded by this Prospectus. No
sales material may be used unless it has first been approved in writing by the
Company. As of the date of this Prospectus, the Company does not plan to use
additional sales material. The Company also may respond to specific questions
from prospective investors.

LEGAL MATTERS

The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Dudley, Topper and Feuerzeig. In addition, the
discussion under "Federal Income Tax Consequences" is based upon the opinion of
Tucker, Flyer & Lewis.

EXPERTS

The consolidated financial statements of the Company as of December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing. The
statements of revenues and certain expenses for Red Hook Plaza, Inc. for the
years ended December 31, 1996, 1995 and 1994, and for Fort Mylner Properties,
Inc. and Golden Orange Centers, Inc. for the twelve months ended June 30, 1997,
appearing in this Prospectus and Registration Statement, have also been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.

The financial statements of Premium Finance Company of the V.I., Inc., as
of December 31, 1996 and 1995 and for the years ended December 31, 1996 and
1995, and for the seven months ended December 31, 1994 have been audited by
Francisco E. Depusoir, CPA, independent auditor, as set forth in his report
thereon appearing elsewhere herein and is included in reliance upon such report
given upon his authority as an expert in accounting and auditing.

<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the SEC a Registration Statement, of which this
Prospectus constitutes a part, under the Securities Act with respect to the
Units offered hereby. This Prospectus omits certain information contained in the
Registration Statement, and reference is made to the Registration Statement and
the exhibits and schedules thereto for further information with respect to the
Company and the Units offered hereby. Statements contained herein concerning the
provisions of any documents are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement. Each such statement is qualified in its entirety by such
reference. The Registration Statement, including exhibits and schedules filed
therewith, may be inspected without charge at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the SEC located at Room
1228, 75 Park Place, New York, New York 10007 and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained from the Public Reference Section of the SEC, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its
public reference facilities in New York, New York and Chicago, Illinois, at
prescribed rates. The SEC also maintains a Web site at http://www.sec.gov which
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC.

<PAGE>

INDEX TO FINANCIAL STATEMENTS

Page
----

Lockhart Caribbean Corporation and Subsidiaries
Pro Forma Condensed Financial Statements-Minimum Offering
(Unaudited)..................................................F-4
Pro Forma Condensed Balance Sheet as of September 30, 1997.............F-5
Notes to Pro Forma Condensed Balance Sheet for the
Nine Months Ended September 30, 1997..........................F-6
Pro Forma Condensed Statement of Operations for the
Nine Months Ended September 30, 1997..........................F-7
Pro Forma Condensed Statement of Operations for the Year Ended
December 31, 1996.............................................F-8
Notes to Pro Forma Condensed Statements of Operations..................F-9

Consolidated Interim Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 1997
and 1996......................................................F-11
Consolidated Statements of Operations for the Nine Months
Ended September 30, 1997 and 1996.............................F-13
Consolidated Statement of Shareholders' Equity for the Nine
Months Ended September 30, 1997 of Shareholders' Equity.......F-14

F-1

<PAGE>

Page
----

Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996.............................F-15
Notes to Unaudited Consolidated Financial Statements...................F-16
Statements of Estimated Taxable Operating Results and Statements
of Estimated Cash Available from Operations for the Twelve
Months Ended September 30, 1997...............................F-21

Audited Consolidated Financial Statements and Other Financial
Information
Report of the Independent Auditors.....................................F-25
Consolidated Balance Sheets as of December 31, 1996
and 1995......................................................F-26
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994..............................F-28
Consolidated Statement of Shareholders' Equity.........................F-29
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994..............................F-30
Notes to Consolidated Financial Statements.............................F-31
Schedule V - Property, Plant and Equipment.............................F-39
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment.................F-40
Schedule VIII - Valuation and Qualifying Accounts......................F-41
Schedule XI - Real Estate and Accumulated Depreciation.................F-42
Schedule XII - Mortgage Loans on Real Estate...........................F-47

Audited Financial Statements (Parent Company Only)
Report of Independent Auditors.........................................F-49
Balance Sheets at December 31, 1996 and 1995...........................F-50
Statements of Operations for the Years Ended December 31, 1996,
1995 and 1994.................................................F-52
Statements of Shareholder's Equity for the Years Ended
December 31, 1996, 1995 and 1994..............................F-53
Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994...........................................F-54
Notes to Financial Statements..........................................F-55

Premium Finance Company of the V.I., Inc.
Report of the Independent Auditors.....................................F-58
Balance Sheets as of December 31, 1996, 1995
and 1994......................................................F-59
Statements of Income and Deficit for the Years Ended
December 31, 1996 and 1995 and the Seven Months Ended
December 31, 1994.............................................F-60

F-2

<PAGE>

Page
----

Statements of Cash Flows for the Years Ended December 31, 1996
and 1995 and the Seven Months Ended December 31, F-61
1994.........................................................
Notes to Financial Statements..........................................F-62

Red Hook Plaza, Inc.
Report of the Independent Auditors.....................................F-66
Statement of Revenues and Certain Expenses for the Years Ended
December 31, 1996, 1995 and 1994..............................F-67
Notes to Statement of Revenues and Certain Expenses....................F-68

Fort Mylner Properties Inc.
Report of Independent Auditors.........................................F-70
Statement of Revenues and Certain Expenses for the Twelve
Months Ended June 30, 1997....................................F-71
Notes to Statement of Revenues and Certain Expenses....................F-72

Golden Orange Centers, Inc.
Report of Independent Auditors.........................................F-74
Statement of Revenues and Certain Expenses for the Twelve
Months Ended June 30, 1997....................................F-75
Notes to Statement of Revenues and Certain Expenses....................F-76

F-3

<PAGE>

LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED FINANCIAL STATEMENTS
MINIMUM OFFERING
(Unaudited)

The following unaudited pro forma condensed financial statements of
Lockhart Caribbean Corporation reflect the following transactions: (i) the sale
of 1,153,846 shares of Class A Common Stock for $6.50 per share (the "Minimum
Offering"), (ii) the use of a portion of the net proceeds to repay $4.5 million
of outstanding debt, and (iii) the use of a portion of the net proceeds to
consummate the probable acquisition of Premium Finance Company of the V.I.,
Inc., a company that finances insurance premiums in the U.S. Virgin Islands and
other Caribbean islands. The pro forma balance sheet as of September 30, 1997
shows the effects of these transactions as if they had occurred at the date of
the balance sheet. The unaudited pro forma condensed statements of operations
for the nine months ended September 30, 1997, and for the year ended December
31, 1996, show the effects of these transactions as if they had occurred at
January 1, 1996, and carried forward through the end of the interim period,
September 30, 1997. Additionally, the statement of operations for the year ended
December 31, 1996 shows the effect of the June 27, 1996 acquisition of three
properties (Fort Mylner Shopping Center, Fort Mylner Commercial Center and
Orange Grove Shopping Center) as if the acquisitions were made at the beginning
of the year.

The pro forma condensed financial statements were prepared by the
management of the Company. These pro forma condensed financial statements may
not be indicative of the results that actually would have occurred if the
transactions had been effected on the dates indicated or which may obtain in the
future. The pro forma condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of
Lockhart Caribbean Corporation and the financial statements and the notes
thereto of Premium Finance Company of the Virgin Islands, Inc. included
elsewhere in this Prospectus.

F-4

<PAGE>

LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Balance Sheet (Unaudited)
As of September 30, 1997
Minimum Offering
<TABLE>
<CAPTION>

Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Assets
Operating property, net of accumulated
depreciation .............................. $32,678,361 $ 55,700(1) $32,734,061
Cash and cash equivalents ...................... 599,511 1,455,680(1)(2) 2,055,119
Accounts and note receivable ................... 534,246 1,459,451(1) 1,993,697
Prepaid expenses ............................... 471,240 4,200(1) 475,440
Deferred financing costs ....................... 455,071 455,071
Other assets ................................... 476,030 29,589(1) 505,619
Goodwill ....................................... 208,660 208,660
----------- ----------- -----------
Total assets ................................... $35,214,459 $ 3,213,208 $38,427,667
=========== =========== ===========

Liabilities & Stockholders' Equity
Liabilities:
Notes payable ............................. $25,555,531 ($4,500,000)(3) $21,055,531
Short-term bank debt ........................... 1,138,534 (1) 1,138,534
Property taxes ................................. 896,699 896,699
Tenant security deposits ....................... 342,993 342,993
Unearned interest .............................. 46,332 (1) 46,332
Accounts payable and other accrued expenses .... 324,250 2,342 (1) 326,592
Deferred income taxes .......................... 861,287 861,287
----------- ----------- -----------
Total liabilities .............................. 27,980,760 (3,312,792) 24,667,968

Stockholder's Equity:
Preferred stock, par value $.01:
Authorized shares 1,000,000, none
issued ................................
Class A common stock, par value $.01:
Authorized shares 40,000,000,
Issued and Outstanding 1,153,846--after
Offering .............................. 11,538 (4) 11,538
Class B common stock, par value $.01:
Authorized shares 9,000,000
Issued and outstanding--8,667,177 ..... 86,672 86,672
Additional paid-in capital ................ 6,758,015 6,514,462 (5) 13,272,477
Retained earnings ......................... 389,012 389,012
----------- ----------- -----------
Total shareholders' equity ..................... 7,233,699 6,526,000 13,748,161
----------- ----------- -----------

Total liabilities and stockholders' equity ..... $35,214,459 $ 3,213,208 $38,427,667
=========== =========== ===========
</TABLE>

F-5

<PAGE>

LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Condensed Balance Sheet
Minimum Offering
(Unaudited)

For purposes of determining the effect of the Minimum Offering on the
Company's Condensed Balance Sheet as of September 30, 1997 the following pro
forma adjustments have been made. The pro forma condensed balance sheets show
the effect of the acquisition of Premium Finance Company of the V.I., Inc.
("PFC") and the repayment of $4.5 million in debt from the net proceeds of the
Minimum Offering as if the transactions had occurred on the dates the balance
sheets are presented.

Nine Months
Ended September 30, 1997
------------------------
<S> <C> <C>
(1) Assets and liabilities from acquisition of PFC and allocation of
purchase price:
Purchase Price - PFC $687,500
Operating property, net of accumulated
depreciation $ 55,700
Cash and cash equivalents 117,108
Accounts and note receivable 1,459,451
Prepaid expenses 4,200
Other assets 29,589
-----------
Total assets $ 1,666,048

Short-term bank debt 1,138,534
Unearned interest 46,332
Accounts payable and other accrued expenses 2,342
-----------
Total liabilities $ 1,187,208

Net Assets 478,840
--------
Goodwill $208,660

(2) Net cash proceeds from the Minimum Offering of $7.5 million
less $974,000 in issuance costs, $4.5 million debt retirement,
and $687,500 for acquisition of PFC 1,338,500

(3) Retirement of bank debt from proceeds of the Minimum Offering (4,500,000)

(4) Minimum Offering of 1,153,846 sharesof Class A Common Stock
at par value of $.01 11,538

(5) Additional paid-in capital:
Sale of 1,153,846 shares of Class A Common Stock at
$6.50 per share less $974,000 in issuance cost
and $11,538 par value 6,514,462

</TABLE>

F-6

<PAGE>

LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Statement of Operations (Unaudited)
For The Nine Months Ended September 30, 1997
Minimum Offering
<TABLE>
<CAPTION>

Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues
Rental $ 3,261,317 $ 3,261,317
Tenant reimbursement 139,539 139,539
Other operating income 226,572 226,572
Interest and loan service fees $ 304,034(2) 304,034
----------- ----------- -----------
Total revenue 3,627,428 304,034 3,931,462

Depreciation and amortization 1,084,998 10,888(3) 1,095,886
Other operating expenses 2,386,318 219,844(5) 2,606,162
----------- ----------- -----------
Total operating expenses 3,471,316 230,732 3,702,048

Operating income 156,112 73,302 229,414

Interest expense (1,671,312) 248,317(6)(8) (1,422,995)
Other income & expense 12,370 12,370
----------- ----------- -----------
Income (loss) before taxes (1,502,830) 321,619 (1,181,211)

Income taxes 562,058 (120,607)(9) 441,451
----------- ----------- -----------
Net income ($ 940,772) $ 201,012 ($ 739,760)
=========== =========== ===========

Net (loss) income per share ($0.10) $0.02 ($0.08)
Weighted average number of common
shares outstanding 9,789,721 9,789,721 9,789,721
</TABLE>

F-7

<PAGE>

LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Statement of Operations (Unaudited)
For the Year Ended December 31, 1996
Minimum Offering
<TABLE>
<CAPTION>

Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues
Rental $ 3,385,002 $ 627,191(1) $ 4,012,193
Tenant reimbursement 248,898 34,310(1) 283,208
Other operating income 582,833 46,247(1) 629,080
Interest and loan service fees 403,784(2) 403,784
----------- ----------- -----------
Total revenue 4,216,733 1,111,532 5,328,265

Depreciation and amortization 1,244,774 189,533(3) 1,434,307
Other operating expenses 2,639,969 509,349(4)(5) 3,149,318
----------- ----------- -----------
Total operating expenses 3,884,743 698,882 4,583,625

Operating income 331,990 412,650 744,640

Interest expense (1,675,930) (119,680)(6)(7)(8) (1,795,610)
Insurance proceeds 75,670 75,670
Loss (gain) on disposal of property 86,440 86,440
Other income & expense (103,775) (103,775)
----------- ----------- -----------
Income (loss) before taxes (1,285,605) 292,970 (992,635)

Income taxes 452,895 (109,864)(9) 343,031
----------- ----------- -----------
Net income ($ 832,710) $ 183,106 ($ 649,604)
=========== =========== ===========

Net (loss) income per share ($0.09) $0.02 ($0.07)
Weighted average number of common
shares outstanding 9,715,892 9,715,892 9,715,892

</TABLE>

F-8

<PAGE>

LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Condensed Statements of Operations
Minimum Offering
(Unaudited)

For purposes of determining the effect of the Minimum Offering on the
Company's Condensed Statements of Operations for the nine months ended September
30, 1997 and for the year ended December 31, 1996, the following pro forma
adjustments have been made. The pro forma condensed financial statements show:
(i) the effect of a full year of operations from the three properties (Fort
Mylner Shopping Center, Fort Mylner Commercial Center and Orange Grove Shopping
Center) acquired on June 27, 1996; (ii) the acquisition of Premium Finance
Company of the V.I., Inc. ("PFC"); and (iii) the repayment of $4.5 million in
outstanding debt.

Nine Months
Year Ended Ended
December 31, 1996 September 30, 1997
----------------- ------------------
<S> <C> <C>
(1) The full year impact on operating revenue
from the acquisition of three properties
on June 27, 1996:
Rental $ 627,191
Tenant reimbursement 34,310
Other operating income 46,247
(2) Additional revenue from the acquisition of PFC 403,784 $ 304,034
(3) Additional depreciation & amortization:
Full year impact from the acquisition of three
properties on June 27, 1996 (175,015)
Acquisition of PFC (14,518) (10,888)
(4) The full year impact on operating expenses from
the three properties acquired on June 27, 1996 225,096
(5) Additional operating expenses from the acquisition
of PFC 284,253 219,844
(6) Interest expense reduction from the retirement of
$4.5 million in outstanding debt 393,118 299,700
(7) The full year impact on interest expense from the
acquisition of three properties on June 27, 1996 (440,556)
(8) Additional interest expense - PFC's existing loans (72,342) (51,383)
(9) Income tax on cumulative effect of adjustments (109,864) (120,607)
(37.5%)

</TABLE>

F-9

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries

Consolidated Interim Financial Statements
(Unaudited)

F-10
<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)

September 30
------------------------------
1997 1996
---- ----
Assets
Operating property:
Land and improvements $ 10,012,272 $ 10,009,236
Buildings and improvements 25,207,386 24,294,149
Equipment 445,369 409,684
Prepaid lease 1,460,657 1,460,657
Construction-in-progress 424,729 281,637
------------ ------------
Total operating property 37,550,413 36,455,363
Accumulated depreciation and amortization (4,872,052) (3,719,134)
------------ ------------
32,678,361 32,736,229
Cash and cash equivalents 599,511 876,986

Accounts and note receivable:
Tenants 388,793 291,530
Note and related accrued interest -- 174,259
Shareholders 94,020 93,495
Other 51,433 57,252
------------ ------------
534,246 616,536
Prepaid expenses 471,240 549,306
Deferred financing costs 455,071 194,153
Other assets 476,030 403,673
------------ ------------
Total assets $ 35,214,459 $ 35,376,883
============ ============

See accompanying notes.

F-11

<PAGE>

September 30
---------------------------
1997 1996
Liabilities and shareholders' equity
Liabilities:
Notes payable
Mortgage notes $25,144,616 $23,195,293
Installment note -- 235,075
Line of Credit 349,773
Lease 61,142 59,000
----------- -----------
Total notes payable 25,555,531 23,489,368
Property taxes 896,699 820,535
Tenant security deposits 342,993 317,428
Accounts payable 8,724 56,063
Accrued expenses and other liabilities 315,526 294,994
Deferred income taxes 861,287 1,601,570
----------- -----------
Total liabilities 27,980,760 26,579,958

Shareholders' equity Preferred stock,
par value $.01:
Authorized shares--1,000,000,
none issued Class A common
stock, par value $.01:

Authorized shares--40,000,000,
none issued Class B common
stock, par value $.01:

Authorized shares--9,000,000
Issued and outstanding shares--
8,667,177 in 1997 and
8,604,598 in 1996 86,672 86,046
Additional paid-in capital 6,758,015 6,660,536
Retained earnings 389,012 2,050,343
----------- -----------
Total shareholders' equity 7,233,699 8,796,925
----------- -----------
Total liabilities and shareholders' equity $35,214,459 $35,376,883
=========== ===========

See accompanying notes.

F-12

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Consolidated Statement of Operations
(Unaudited)

Nine Months Ended
September 30
-----------------------------
1997 1996
---- ----
Income:
Rental Income $ 3,261,317 $ 2,239,765
Tenant expense reimbursement 139,539 76,236
Other operating income 226,572 532,752
----------- -----------
Total Income 3,627,428 2,848,753

Operating expenses:
Operating and maintenance 253,523 175,988
Salaries and employee benefits 665,817 603,064
Directors' fees 186,800 173,200
Utilities 211,120 93,986
Insurance 398,581 287,460
Depreciation and amortization 1,084,998 677,391
Other taxes 461,882 368,478
Professional fees 128,612 156,906
Other general and administrative 79,983 69,284
----------- -----------
Total Operating expenses 3,471,316 2,605,757
----------- -----------
Operating income 156,112 242,996

Other income (expense):
Interest expense (1,671,312) (1,162,695)
Gain on disposal of operating
property -- 80,505
Other income 12,370 104,783
----------- -----------
Total other income (expense) (1,658,942) (977,407)
----------- -----------
Loss before income taxes (1,502,830) (734,411)
Deferred income tax benefit 562,058 274,670
----------- -----------
Net loss ($ 940,772) ($ 459,741)
=========== ===========

See accompanying notes.

F-13

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Consolidated Statement of Shareholders' Equity
Nine Months Ended September 30, 1997
(Unaudited)

Common Additional Retained
Stock Paid-in Capital Earnings Total
----- --------------- -------- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $86,222 $6,669,379 $1,578,369 $8,333,970
Issuance of common stock 450 88,636 -- 89,086
Net loss -- -- (940,772) (940,772)
Cash dividends -- -- (248,585) (248,585)
------ --------- ---------- ---------
Balance at September 30, 1997 $86,672 $6,758,015 $ 389,012 $7,233,699
====== ========= ========== =========
</TABLE>

See accompanying notes.

F-14

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>

Nine Months Ended
September 30
----------------------------
1997 1996
---- ----
Operating activities
<S> <C> <C>
Net loss ($ 940,772) ($ 459,741)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,084,998 677,391
Deferred income taxes (562,058) (274,670)
Gain on disposal of operating property -- (80,505)
Changes in operating assets and liabilities:
Accounts and note receivable 239,670 5,436,854
Prepaid expenses (68,633) (302,346)
Other assets (230,262) (154,074)
Tenant security deposits 28,958 91,791
Accounts payable and accrued expenses (65,248) 162,508
------------ ------------
Net cash provided by (used in) operating activities (513,347) 5,097,208

Investing activities
Acquisition of land -- (2,974,051)
Sale of land -- 80,505
Acquisition of buildings and improvements (248,463) (12,076,704)
Acquisition of equipment (18,709) (100,732)
------------ ------------
Net cash used in investing activities (267,172) (15,070,982)

Financing activities
Principal payments on notes (183,722) (386,716)
Proceeds from issuance of notes 795,773 10,762,330
Proceeds from issuance of common stock 107,122 238,476
Repurchase of common stock (18,036) (79,058)
Loan issuance costs (2,685) (68,868)
Cash dividends (248,585) (245,607)
------------ ------------
Net cash provided by financing activities 449,867 10,220,557

Net (decrease) increase in cash and cash equivalents (330,652) 246,783
Cash and cash equivalents at January 1 930,163 630,203
------------ ------------

Cash and cash equivalents at September 30 $ 599,511 $ 876,986
============ ============
</TABLE>

See accompanying notes.

F-15

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
September 30, 1997

1. Summary of Significant Accounting Policies

Description of Business

Lockhart Caribbean Corporation ("LCC") is organized as a United States Virgin
Islands corporation engaged in owning, developing and leasing commercial real
estate. LCC leases developed land, and retail and office space to customers
under month-to-month and long-term leases. The accompanying consolidated
financial statements include the accounts of LCC and its wholly-owned
subsidiaries H.E. Lockhart Management, Inc. ("HELM") and Lockhart Realty, Inc.
("LRI"). Significant intercompany balances and transactions have been eliminated
in consolidation.

Basis of Presentation

The consolidated financial statements of LCC as of September 30, 1997 and for
the nine months ended September 30, 1996 and 1997 are unaudited but have been
prepared in accordance with generally accepted accounting principles for interim
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. The results of operations of any interim period are not
necessarily indicative of the results of operations for the full year. The
accompanying financial information should be read in conjunction with the
financial statements, including the notes thereto, for the year ended December
31, 1996 included elsewhere in this Prospectus.

Uses of Estimates

The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles which requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Cash Equivalents

Cash equivalents consist of short-term, highly liquid investments with maturity
of three months or less when purchased. Cash equivalents amounted to $124,973
and $131,388 at September 30, 1997 and 1996, respectively, and consisted
primarily of money market instruments.

Construction-in-Progress

Construction-in-progress consists primarily of costs (including applicable
property taxes and interest) incurred relating to certain renovation and
rebuilding projects. These costs are included in operating property when the
projects are completed.

Operating Property

Operating property is stated on the basis of cost. LCC provides for depreciation
of operating property using the straight line and accelerated methods for
financial reporting purposes and the modified accelerated cost recovery system
for income tax purposes over their estimated useful lives, which range from 5 to
31.5 years. Expenditures for maintenance and general repairs are charged to
expenses as incurred, whereas major improvements are classified as additions to
operating property.

Net Income (Loss) Per Share

Net income (loss) per share is computed based upon the weighted average number
of common shares outstanding during the periods.

F-16

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
September 30, 1997

Capitalized Interest

Interest is capitalized as a component of the cost of property, plant and
equipment constructed. No interest was capitalized in the periods ended
September 30, 1997 and September 30, 1996.

Long-Lived Assets

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
Of". The Company adopted SFAS No. 121 in 1995, which had no material effect on
the Company's financial statements. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset, a loss is
recognized for the difference between the fair market value and carrying value
of the asset.

Deferred Financing Costs

Deferred financing costs represents costs incurred related to the issuance of
debt and are amortized over the term of the related debt.

Fair Values of Financial Instruments

The following methods and assumptions were used by LCC in estimating its fair
value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and cash equivalents approximate those assets' fair values.

Note receivable: The carrying amount reported in the balance sheet approximates
fair value due to the underlying collateral on the note.

Notes payable: The carrying amounts of the mortgage notes, which bear interest
based on the financial institution's prime rate, approximate fair value due to
the periodic repricing of the interest rates. The carrying amounts of the fixed
rate mortgage and the installment note approximate fair value based on
discounted cash flow analyses.

2. Note Receivable

In 1989, HELM sold a parcel of land and received a promissory note for $101,000,
secured by a first priority mortgage on the property. No interest was accrued
for the nine months ended September 30, 1997 and 1996. The note was settled on
March 14, 1997 for $169,000. Accrued interest as of March 14, 1997 amounted to
$73,259.

3. Notes Payable

Mortgage notes payable consisted of the following:

F-17

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
September 30, 1997
<TABLE>
<CAPTION>

September 30
-------------------
1997 1996
---- ----

<S> <C> <C>
First and second mortgage note payable to financial
institution at prime plus .5% (9% at September 30, 1997) $14,521,167 $ --

First mortgage note payable to a financial institution
at prime plus .5% (9% at September 30, 1997) 4,475,702 --

First mortgage payable to a financial institution
at prime plus 1.5% (10% and 9.75% at September 30, 1997
and 1996, respectively) 756,640 832,312

First mortgage note payable to seller at 8.75% 4,645,107 4,680,652

Non-revolving line of credit promissory note to a financial
institution at prime plus .5% (9% at September 30, 1997) 746,000 --

Interim mortgage note payable to a financial institution at
prime plus .5% (8.75% at September 30, 1996) -- 10,018,125

First mortgage note payable to a financial institution at
prime plus 1.25% (9.5% at September 30, 1996) -- 3,735,552

First mortgage note payable to a financial institution at
prime plus 1.25% (9.5% at September 30, 1996) -- 1,925,118

First mortgage note payable to a financial institution at
prime plus 1% (9.25% at September 30, 1996) -- 1,318,329

Non revolving line of credit promissory note to a financial
institution at prime plus 1% (9.25% at September 30, 1996) -- 685,205
----------- -----------
$25,144,616 $23,195,293
=========== ===========
</TABLE>

The $14.5 million mortgage note is payable in monthly installments of $125,032
commencing in May 1997 after a six month interest-only payment period. A final
balloon payment of $14.1 million is due when the note matures in April 2000.
Proceeds of the note were used to retire mortgage and installment notes on
Drakes Passage; and to retire mortgage notes issued for the renovation of Grand
Hotel, acquisition of Red Hook Plaza, and an interim loan of $10 million issued
to acquire Orange Grove Shopping Center, Fort Mylner Commercial Center, and Fort
Mylner Shopping Center.

The $4.5 million mortgage note is payable in monthly installments of $38,537
commencing May 1997 after an initial interest-only payment period. A final
balloon payment of approximately $4.3 million is payable when the note matures
in April 2000. The proceeds of the note were used to liquidate the mortgage note
issued for the renovation of Lockhart Gardens Shopping Center (which had an
outstanding balance of $3,735,552 at liquidation).

The $756,640 mortgage note is payable in monthly installments of $6,306 plus
interest through May 1999 and a final balloon payment of $630,520 in June 1999.

F-18

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
September 30, 1997

Proceeds of the $4.7 million mortgage note to seller were used to finance the
acquisition of Red Hook Plaza Shopping Center. The note is payable in monthly
installments of $34,971 commencing February 1996. A final installment comprised
of the principal sum then outstanding together with any unpaid interest is
payable when the note matures in January 2004. The note is secured by a first
priority mortgage on properties at Red Hook Plaza Shopping Center, an
conditional assignment of leases and rents, and a guarantee of LCC up to a
maximum amount of $750,000.

HELM, a subsidiary, obtained a $1 million non-revolving line of credit from a
financial institution. A total of $746,000 has been drawn on the line of credit
as of September 30, 1997. The balance outstanding under the line of credit is
due and payable on April 2000. Interest accrues at .5% above the institution's
prime rate and is payable monthly.

The mortgage notes of $3,735,552, $1,925,118, and $1,318,329 on September 30,
1996 and the interim note of $10 million were all retired in October 1996 when
two new mortgage notes of $14.6 million and $4.5 million, respectively were
issued.

Substantially all operating property is pledged as collateral on the mortgage
notes.

Installment Note

In 1990, HELM purchased a lease on its Drakes Passage property through an
installment note payable. The note was schedule to mature in 1997. The
acquisition of the lease was recorded as a capitalized asset at the present
value of the acquisition cost. The capitalized asset and discount were being
amortized over the seven year term of the installment note.

At September 30, 1996, the balance of the installment note was $235,075 (net of
unamortized discount of $79,936). The note was liquidated in October 1996 with
the proceeds of the $14.6 million mortgage note.

At July 1996, HELM purchased a vehicle for $59,000 through an installment note
payable which matures on June 1, 2001. In February, 1997, HELM financed the
purchase of another vehicle through an installment note payable of $13,800 which
matures on January 1, 2002.

On August 1, 1997, LCC obtained a line of credit from a financial institution in
the amount of $400,000. Advances under the line of credit will bear interest at
the institution's prime rate. At September 30, 1997, a total of $349,773 was
advanced under the line of credit. The line of credit expires on July 1, 1998.

4. Income Taxes

At September 30, 1997, LCC had operating loss carryforwards of approximately
$1,029,000 available to offset future taxable income through the year 2011.

F-19

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
September 30, 1997

At September 30, 1996 and 1997, net deferred income taxes (liabilities) had
balances of $861,287 and $1,601,570, respectively.

5. Leases

The Company, through its subsidiaries, leases retail and office space under
noncancellable leases which expire at various dates. Five-year renewal options
are available with most leases. The leases provide for minimum rental payments
plus adjustments, if applicable for certain additional costs incurred by the
lessor and/or a percentage of gross sales. No rent attributable to a percentage
of tenants' gross sales are included in the periods ended September 30, 1997 and
September 30, 1996.

At September 30, 1997, the approximate future minimum rental income under the
lease agreements were as follows:

1998 $ 4,635,000
1999 4,805,000
2000 4,918,000
2001 5,061,000
Thereafter 5,237,000
-----------
$24,656,000
===========

6. Transaction with Related Parties

The amounts due from shareholders are interest bearing and have no specific
repayment terms.

A shareholder of LCC and member of the board of directors is also a partner of a
law firm which renders legal services to LCC. During the nine months ended
September 30, 1997 and 1996, fees paid to the law firm amounted to $105,199 and
$104,327 respectively.

7. Subsequent Events

On October 3, 1997, the Company and the shareholders of Premium Finance Company
of the V.I. Inc. ("PFC") executed an agreement for the purchase of all the
outstanding common stock of PFC for $687,500. PFC finances insurance premiums
for individuals and businesses primarily in the U.S. Virgin Islands, the British
Virgin Islands and Anguilla. The acquisition is dependent upon regulatory
approval. In addition, the Company has agreed to guarantee a bank loan to a
wholly-owned subsidiary of PFC in the amount of $200,000.

One of the Company's major tenants advised the Company that it intends to vacate
its premises by December 1997. In October 1997, the Company signed a lease with
another major national retailer for the space to be vacated by December 1997.

F-20

<PAGE>

LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
STATEMENTS OF ESTIMATED TAXABLE OPERATING RESULTS
AND
STATEMENTS OF ESTIMATED CASH AVAILABLE FROM OPERATIONS

The following unaudited schedules are presented for Red Hook Plaza, Inc., Fort
Mylner Properties, Inc., and Golden Orange Centers, Inc., which are wholly-owned
subsidiaries of the Company, and which represent the properties recently
acquired by the Company.

The statements are based on the actual operating results for Red Hook Plaza,
Inc., Fort Mylner Properties, Inc., and Golden Orange Centers, Inc. for the most
recent twelve-month period ended September 30, 1997. Total rental revenue for
Red Hook Plaza, Inc. was increased by 5% over actual results to reflect rentals
to be collected in the coming year in accordance with current lease agreements
which allow for annual increases of 5%. No other adjustments were made to the
actual results.

F-21

<PAGE>

RED HOOK PLAZA, INC.

Twelve Months Ended September 30, 1997

Statement of Estimated Taxable Operating Results

Revenue:
Rental revenue $779,441
Reimbursements & other income 144,703
-------
Total revenue $924,144

Operating expenses:
Property operating & maintenance 262,086
Real estate taxes 39,072
Management fees 56,028
Depreciation & amortization 158,163
--------
Total operating expenses 515,349
-------
Operating profit 408,795

Interest expense (408,153)
Other income 7,024
--------
Estimated taxable operating results $ 7,666
========

Statement of Estimated Cash Available from Operations
Net income $ 7,666
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 158,163
Changes in operating assets and liabilities (42,569)
-------
Estimated net cash available provided by operating
activities $123,260
=======

F-22

<PAGE>

FORT MYLNER PROPERTIES, INC.

Twelve Months Ended September 30, 1997

Statement of Estimated Taxable Operating Results
Revenue:
Rental revenue $848,991
Reimbursements & other income 115,977
-------
Total revenue $964,968

Operating expenses:
Operating & maintenance 232,457
Real estate taxes 51,491
Depreciation & amortization 189,060
--------
Total operating expenses 473,008
-------
Operating profit 491,960

Interest expense (586,347)
--------
Estimated taxable operating results $(94,387)
=======

Statement of Estimated Cash Available
from Operations
Net loss $(94,387)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 189,060
Changes in operating assets and
liabilities (95,319)
-------
Estimated net cash available provided by
operating activities $ (646)
========

F-23

<PAGE>

GOLDEN ORANGE CENTERS, INC.

Twelve Months Ended September 30, 1997

Statement of Estimated Taxable Operating Results

Revenue:
Rental revenue $451,665
Reimbursements & other income 89,084
--------
Total revenue $540,749

Operating expenses:
Operating & maintenance 144,852
Real estate taxes 26,881
Depreciation & amortization 161,149
--------
Total operating expenses 332,882
--------
Operating profit 207,868

Interest expense (323,037)
--------
Estimated taxable operating results $(115,170)
--------

Statement of Estimated Cash Available from Operations
Net loss $(115,170)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 161,149
Changes in operating assets and liabilities 82,074
--------
Estimated net cash available provided by operating
activities $ 128,053
========

F-24

<PAGE>

Report of Independent Auditors

The Board of Directors and Shareholders
Lockhart Caribbean Corporation

We have audited the accompanying consolidated balance sheets of Lockhart
Caribbean Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also included the financial statement schedules listed in the Index.
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lockhart Caribbean
Corporation and Subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.

/s/ Ernst & Young LLP

San Juan, Puerto Rico
March 7, 1997, except for Note 7 as to
which the date is October 22, 1997

F-25

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>

December 31
1996 1995
----------------------------

<S> <C> <C>
Assets
Operating property:
Land and improvements $ 10,009,236 $ 7,030,326
Buildings and improvements 25,068,409 11,548,709
Equipment 426,660 308,952
Prepaid lease 1,460,657 1,460,657
Construction-in-progress 265,706 1,193,549
--------------------------
Total operating property 37,230,668 21,542,193
Accumulated depreciation and amortization (4,002,257) (3,098,146)
--------------------------
33,228,411 18,444,047

Cash and cash equivalents 930,163 463,909
Restricted cash -- 166,294
--------------------------
930,163 630,203

Accounts and note receivable, net allowance
for doubtful accounts of $97,800 in 1996 and
$66,000 in 1995:
Tenants 374,266 347,935
Note and related accrued interest 174,259 174,259
Shareholders 97,568 97,043
Insurance proceeds -- 5,316,169
Other 107,680 106,679
--------------------------
753,773 6,042,085

Prepaid expenses 325,879 250,098

Deferred financing costs, less accumulated amortization
of $26,061 in 1996 and $17,600 in 1995 508,189 113,957

Other assets 523,446 24,990
--------------------------
Total assets $ 36,269,861 $ 25,505,380
==========================

</TABLE>

F-26

<PAGE>

December 31
1996 1995
--------------------------
<S> <C> <C>
Liabilities and shareholders' equity
Liabilities:
Notes payable:
Mortgage notes $24,885,459 $12,641,454
Installment note -- 391,642
Capital lease 58,033 27,244
------------------------
Total notes payable 24,943,492 13,060,340
Property taxes 778,137 498,195
Tenant security deposits 314,035 225,637
Accounts payable 127,431 117,137
Accrued expenses and other liabilities 350,746 398,975
Deferred income taxes 1,422,050 1,876,240
------------------------
Total liabilities 27,935,891 16,176,524

Shareholders' equity:
Preferred stock, par value $.01:
Authorized shares - - 1,000,000, none issued
Class A common stock, par value $.01:
Authorized shares 40,000,000, none issued
Class B common stock, par value $.01
Authorized shares 9,000,000
Issued and outstanding shares 8,622,155
in 1996 and 8,525,543 in 1995 86,222 85,255
Additional paid-in capital 6,669,379 6,501,909
Retained earnings 1,578,369 2,741,692
-----------------------
Total shareholders' equity 8,333,970 9,328,856

-----------------------
Total liabilities and shareholders' equity $36,269,861 $25,505,380
=========================

</TABLE>

See accompanying notes.

F-27

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>

Year ended December 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income:
Rental income $ 3,385,002 $ 3,028,074 $ 2,717,594
Tenant expense reimbursements 248,898 332,159 281,196
Other operating income 582,833 611,567 76,919
-----------------------------------------
Total income 4,216,733 3,971,800 3,075,709

Operating expenses:
Operating and maintenance 243,817 189,112 125,511
Salaries and employee benefits 834,697 906,289 728,745
Directors fees 195,500 325,255 171,520
Utilities 162,418 94,293 85,501
Insurance 454,670 338,879 345,156
Other taxes 475,836 499,863 423,992
Professional fees 203,157 355,427 103,849
Other general and administrative 69,874 48,166 38,447
Depreciation and amortization 1,244,774 906,263 639,147
----------------------------------------
Total operating expenses 3,884,743 3,663,547 2,661,868
----------------------------------------
Operating income 331,990 308,253 413,841

Other income (expense):
Interest expense (1,675,930) (1,084,204) (437,859)
Other expenses (105,415) (199,863) (74,151)
Gain (loss) on disposal of operating property 86,440 (850,972) 1,713
Other income 1,640 1,535 3,030
Insurance proceeds 75,670 5,916,981 --
----------------------------------------
Total other income (expense) (1,617,595) 3,783,477 (507,267)
----------------------------------------
(Loss) income before income taxes (1,285,605) 4,091,730 (93,426)

Provision (benefit) for income taxes:
Current 1,295 (218,558) 37,877
Deferred (454,190) 1,806,413 (80,045)
----------------------------------------
(452,895) 1,587,855 (42,168)
----------------------------------------

Net (loss) income $ (832,710) $ 2,503,875 $ (51,258)
========================================

</TABLE>

See accompanying notes.

F-28

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity

Class A Additional
Number of Common Paid-In Retained
Shares Stock Capital Earnings Total
-----------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 8,196,745 $81,967 $6,030,043 $ 931,460 $7,043,470

Issuance of common stock 137,902 1,379 187,676 189,055

Net loss (51,258) (51,258)

Cash dividends (317,898) (317,898)
-----------------------------------------------------------------------------------------

Balance at December 31, 1994 8,334,647 83,346 6,217,719 562,304 6,863,369

Net issuance of common stock 190,896 1,909 284,190 286,099

Net income 2,503,875 2,503,875

Cash dividends (324,487) (324,487)
-----------------------------------------------------------------------------------------

Balance at December 31, 1995 8,525,543 85,255 6,501,909 2,741,692 9,328,856

Net issuance of common stock 96,612 967 167,470 168,437

Net loss (832,710) (832,710)

Cash dividends (330,613) (330,613)
-----------------------------------------------------------------------------------------
Balance at December 31, 1996 8,622,155 $86,222 $6,669,379 $1,578,369 $8,333,970
=========================================================================================

</TABLE>

See accompanying notes.

F-29

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

Year ended December 31
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Operating activities
Net (loss) income $ (832,710) $ 2,503,875 $ (51,258)
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 1,244,774 906,263 639,147
Deferred income taxes (454,190) 1,806,413 (80,045)
(Gain) loss on disposal of operating property (86,440) 850,972 (1,713)
Changes in operating assets and liabilities:
Restricted Cash 166,294 (166,294) --
Accounts and note receivable 5,331,427 (5,296,594) 144,256
Prepaid expenses (75,781) (31,582) 27,966
Other assets (1,179,207) (47,354) (31)
Tenant security deposits 88,398 67,016 16,318
Accounts payable and accrued expenses 242,007 443,956 47,700
Income taxes payable -- -- (11,870)
-----------------------------------------
Net cash provided by operating activities 4,444,572 1,036,671 730,470

Investing activities
Acquisition of land (2,986,417) (1,013,862) (912)
Proceeds from sale of land 80,405 -- --
Proceeds from sale of operating property -- -- 35,929
Acquisition of buildings and improvements (12,547,702) (6,275,945) (84,958)
Acquisition of other operating property (73,728) (22,110) (1,868,688)
Acquisition of equipment (58,692) (48,483) (74,977)
-----------------------------------------
Net cash used in investing activities (15,586,134) (7,360,400) (1,993,606)

Financing activities
Principal payments on mortgage notes payable (17,555,996) (290,840) (212,340)
Proceeds from issuance of mortgage notes payable 29,800,000 6,334,260 1,688,870
Proceeds from issuance of common stock 256,513 286,099 189,055
Repurchase of common stock (88,076) -- --
Principal payments on installment note payable (391,642) (279,996) (279,996)
Principal payments on lease payable (28,226) (11,956) (9,990)
Loan issuance costs (54,144) -- (10,505)
Cash dividends (330,613) (324,487) (317,898)
-----------------------------------------
Net cash provided by financing activities 11,607,816 5,713,080 1,047,196
-----------------------------------------
Net increase (decrease) in cash and cash equivalents 466,254 (610,649) (215,940)
Cash and cash equivalents at beginning of year 463,909 1,074,558 1,290,498
-----------------------------------------

Cash and cash equivalents at end of year $ 930,163 $ 463,909 $ 1,074,558
=========================================

Supplemental cash flow information:
Interest paid, net of interest capitalized $ 1,626,963 $ 823,863 $ 535,090
=========================================
</TABLE>

See accompanying notes.

F-30

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996

1. Summary of Significant Accounting Policies

Description of Business

Use of Estimates

Cash Equivalents

Cash equivalents consist of short-term, highly liquid investments with a
maturity of three months or less when purchased. Cash equivalents amounted to
$313,439 and $84,405 at December 31, 1996 and 1995, respectively, and consisted
primarily of money market instruments.

Construction-in-Progress

Operating Property

Operating property is stated on the basis of cost. LCC provides for depreciation
of operating property using the straight-line method for financial reporting
purposes and the modified accelerated cost recovery system for income tax
purposes over their estimated useful lives, which range from 5 to 31.5 years.
Expenditures for maintenance and general repairs are charged to expense as
incurred, whereas major improvements are classified as additions to operating
property.

Net Income (Loss) Per Share

Net income (loss) per share is computed based upon the weighted average number
of common shares outstanding during the periods.

F-31

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

Capitalized Interest

Interest is capitalized as a component of the cost of property, plant and
equipment constructed. In 1995 interest amounting to $97,606 was capitalized. No
interest was capitalized in 1996 or 1994.

Long-Lived Assets

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The
Company adopted SFAS No. 121 in 1995, which had no material effect on the
Company's financial statements. Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. If the sum of the expected future undiscounted cash
flows is less than the carrying amount of the asset, a loss is recognized for
the difference between the fair value and carrying value of the asset.

Deferred Financing Costs

Deferred financing costs represent costs incurred related to the issuance of
debt and are amortized over the term of the related debt.

Fair Values of Financial Instruments

The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and cash equivalents approximate those assets' fair values.

Note receivable: The carrying amount reported in the balance sheet approximates
fair value due to the underlying collateral on the note.

2. Note Receivable

In 1989, HELM sold a parcel of land and received a promissory note for $101,000,
secured by a first priority mortgage on the property. LCC has taken legal action
to foreclose on the mortgage and the mortgagor was defending such action. No
interest was accrued for the years ended December 31, 1996, 1995 and 1994.
Accrued interest as of December 31, 1996 and 1995 amounted to $73,300. The note
was settled on March 14, 1997 for $169,000.

F-32

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)

3. Notes Payable

Mortgage notes payable consisted of the following:
<TABLE>
<CAPTION>

December 31
1996 1995
-------------------------
<S> <C> <C>
First and second mortgage note payable to a
financial institution at prime plus .5%
(8.75% at December 31, 1996) $14,600,000 $ --

First mortgage note payable to a
financial institution at prime plus .5%
(8.75% at December 31, 1996) 4,500,000 --

First mortgage note payable to a financial
institution at prime plus 1.5% (9.75% and 10%
at December 31, 1996 and 1995, respectively) 813,394 882,760

First mortgage note payable to seller at 8.75% 4,672,065 4,700,000

Non-revolving line of credit promissory note to a
financial institution at prime plus .5% (8.75%
at December 31, 1996) 300,000 --

First mortgage note payable to a financial institution
at prime plus 1.25% (9.75% at December 31, 1995) -- 3,735,552

First mortgage note payable to a financial institution
at prime plus 1.25% (9.75% at December 31, 1995) -- 1,941,467

Second mortgage note payable to a financial institution
at prime plus 1% (9.5% at December 31, 1995) -- 1,381,675
-------------------------
$24,885,459 $12,641,454
=========================
</TABLE>

The $14.6 million mortgage note is payable in monthly installments of $125,032
commencing in May 1997 after a six month interest-only payment period. A final
balloon payment of $14.1 million is due when the note matures in April 2000.
However, if there are no events of default, the financial institution has agreed
to convert the balance outstanding on April 1, 2000 to a term loan payable in 15
years and bearing interest at prime plus .5%. Proceeds of the note were used to
retire mortgage and installment notes issued for the renovation of the Grand
Hotel and acquisition of Red Hook Plaza Shopping Center and Drakes Passage
properties (which had outstanding balances of $1,941,467, $1,381,675 and
$391,642, respectively, at December 31, 1995), and to retire an interim loan of
$10.4 million, used to acquire the Orange Grove Shopping Center and Fort Mylner
properties, obtained during 1996.

F-33

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)

3. Notes Payable (continued)

The $4.5 million mortgage note is payable in monthly installments of $38,537
commencing in May, 1997 after an initial interest-only payment period. A final
balloon payment of approximately $4.3 million is payable when the note matures
in April 2000. However, if there are no events of default, the financial
institution has agreed to convert the balance outstanding on April 1, 2000 to a
term loan payable in 15 years and bearing interest at prime plus .5%. The
proceeds of the note were used to liquidate the mortgage note issued for the
renovation of Lockhart Gardens Shopping Center (which had an outstanding balance
of $3,735,552 at December 31, 1995).

The mortgage note with an outstanding balance of $813,394 at December 31, 1996
is payable in monthly installments of $6,306 plus interest through May, 1999 and
a final payment of $630,520 due in June, 1999.

Proceeds of the $4.7 million mortgage note were used to finance the acquisition
of Red Hook Plaza Shopping Center. The note is payable in monthly installments
of $34,971 commencing in February 1996. A final installment comprised of the
principal sum then outstanding together with any unpaid interest is payable when
the note matures in January 2004. The note is secured by a first priority
mortgage on properties at the Red Hook Plaza Shopping Center, a conditional
assignment of leases and rents, and a guarantee of LCC up to a maximum amount of
$750,000.

HELM obtained a $1 million non-revolving line of credit from a financial
institution. $300,000 has been drawn on the line of credit as of December 31,
1996. The balance outstanding under the line of credit is due and payable in
April 2000. However, if there are no events of default, the financial
institution has agreed to convert the balance outstanding on April 1, 2000 to a
term loan payable in 15 years and bearing interest at prime plus .5%. Interest
is accrued on the unpaid balance at .5% above the institution's prime rate and
is payable monthly.

The financial institution granted a moratorium on principal payments of the
three mortgage notes due to the effects of Hurricane Marilyn. The moratorium
period was from November 1995 to July 1996 for the $3.7 million mortgage, and
from November 1995 to January 1996 for the $1.9 million mortgage and the
$883,000 mortgage. The principal payments during the moratorium period were
added to the balloon payments due when the notes were scheduled to mature.

Installment Note

In 1990, HELM purchased a lease on its Drake's Passage property through an
installment note payable. The note was scheduled to mature in 1997. The
acquisition of the lease was recorded as a capitalized asset at the present
value of the acquisition cost. The capitalized asset and discount are being
amortized over the seven year term of the installment note.

At December 31, 1995, the balance of the installment note was $391,642 (net of
unamortized discount of $133,351). The note was liquidated in 1996 with the
proceeds of the $14.6 million mortgage note.

F-34

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)

3. Notes Payable (continued)

Capital Lease Obligations

In August 1992, HELM leased a vehicle for $60,000 under a capital lease which
expired in August, 1996. The lease required monthly installments of $1,508 and
bore interest at 13%.

In July, 1996, HELM purchased a vehicle for $59,000 through an installment note
payable. The note matures on June 1, 2001 and is payable in monthly principal
installments of $983.

Principal payments of notes payable (including unamortized discount) for the
five years subsequent to December 31,1996, and in the aggregate, are as follows:

1997 $ 225,434
1998 309,040
1999 916,783
2000 18,826,117
2001 16,024
Thereafter 4,650,094
----------------

$24,943,492
================

4. Income Taxes

At December 31, 1996 the Company has operating loss carryforwards of
approximately $1,029,000 and $346,000 available to offset future taxable income
through the years 2011 and 2010, respectively.

At December 31, 1996 and 1995 net deferred income taxes (liabilities) consisted
of the following:

1996 1995
--------------------------
Depreciation $ 632,004 $ 704,879
Provision for doubtful accounts receivable 38,676 24,684
Basis of operating property (2,788,285) (2,754,990)
Contributions carry-forward 25,295 19,738
Operating loss carry-forward 670,260 129,449
--------------------------
$(1,422,050) $(1,876,240)
==========================

F-35

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)

4. Income Taxes (continued)

The differences between income taxes at the statutory rate of 37.4% and the
income tax provision (benefit) in the accompanying statements of operations
amount to $28,021, $20,148 and $(7,227) for the years ended December 3, 1996,
1995 and 1994, respectively, and are due to nondeductible expenses and
miscellaneous items.

5. Leases

The Companies lease retail and office space to tenants under noncancelable
leases which expire at various dates. Five year renewal options are available
with most leases. The leases provide for minimum annual rental payments plus
adjustments, if applicable, for certain additional costs incurred by the lessor
and/or a percentage of gross sales. Included in rental income for the years
ended December 31, 1996, 1995 and 1994 are $77,000, $100,000 and $221,000,
respectively, of rent attributable to a percentage of tenants' gross sales.

At December 31, 1996, the approximate future minimum rental income under the
lease agreements were as follows:

1997 $ 4,484,000
1998 4,786,000
1999 4,824,000
2000 5,012,000
2001 5,109,000
Thereafter 5,237,000
-----------
Aggregate future minimum rental income $29,452,000
===========

6. Transactions with Related Parties

The amounts due from shareholders bear interest at 9% and have no specific
repayment terms.

A shareholder of LCC and member of the board of directors is also a partner of a
law firm which renders legal services to LCC. During the years ended December
31, 1996, 1995 and 1994 fees paid to the law firm amounted to approximately
$201,000, $100,000 and $58,000, respectively.

F-36

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)

Subsequent Events

On October 3, 1997, the Company executed a Stock Purchase Agreement to purchase
all the outstanding common stock of Premium Finance Company of the V.I., Inc.
("PFC") for $687,500. PFC finances insurance premiums for individual and
businesses primarily in the U. S. Virgin Islands, the British Virgin Islands and
Anguilla. The acquisition is dependent upon receiving regulatory approval. In
addition, the Company has agreed to guarantee a bank loan to a wholly-owned
subsidiary of PFC amounting to $200,000.

On July 5, 1997 the shareholders of The Lockhart Companies Incorporated ("LCI")
voted to restructure and recapitalize the Company and to offer common stock to
the public in an initial public offering to be registered with the Securities
and Exchange Commission. In connection with the restructuring and
recapitalization, LCI changed its name to Lockhart Caribbean Corporation ("LCC")
on August 22, 1997. On the same date, the shareholders of LCI exchanged each of
their shares for 9.7 shares of Class B common stock of LCC. The transaction has
been accounted for in a manner similar to a pooling-of-interests and,
accordingly, the financial statements as of and for the years ended December 31,
1996, 1995 and 1994 have been restated to give retroactive recognition to this
transaction.

On August 1, 1997, the Company obtained an additional line of credit from a
financial institution in the amount of $400,000. Advances under the line of
credit will bear interest at the institutions prime rate. The line of credit
expires on July 31, 1998.

One of the Company's major tenants advised the Company that it intends to vacate
the premises in October 1997. The tenant's lease does not expire until 2001, and
it is obligated to make base rental payments until 2001. The Company and the
tenant are negotiating an amicable settlement. The tenants annual base rent is
approximately $240,000 per year. On October 22, 1997, HELM signed a lease
agreement with a suitable replacement tenant.

F-37

<PAGE>

Other Financial Information

F-38

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Schedule V - Property, Plant and Equipment
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E Col. F
- ------------------------------------------------------------------------------------------------------------
Balance at Additions Other
Beginning of at Charges Balance at
year Cost Retirements Add (Deduct) End of year
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Land and improvements $ 7,030,326 $ 2,986,417 $ (7,507) $ -- $10,009,236
Buildings and improvements 11,548,709 12,547,702 -- 971,998 25,068,409
Equipment 308,952 58,692 -- 59,016 426,660
Prepaid lease 1,460,657 -- -- -- 1,460,657
Construction-in-progress 1,193,549 73,728 (29,573) (971,998) 265,706
------------------------------------------------------------------------
$21,542,193 $ 15,666,539 $ (37,080) $ (39,016) $37,230,668
========================================================================

Year ended December 31, 1995:
Land and improvements $ 6,016,464 $ 1,013,862 $ -- $ -- $ 7,030,326
Buildings and improvements 7,104,296 6,275,945 (3,106,099) 1,274,567 11,548,709
Equipment 429,510 48,483 (5,280) (163,761) 308,952
Prepaid lease 1,460,657 -- -- -- 1,460,657
Construction-in-progress 2,446,006 22,110 -- (1,274,567) 1,193,549
------------------------------------------------------------------------
$17,456,933 $ 7,360,400 $(3,111,379) $ (163,761) $21,542,193
========================================================================

Year ended December 31, 1994:
Land and improvements $ 6,015,552 $ 912 $ -- $ -- $ 6,016,464
Buildings and improvements 7,080,481 84,958 (61,143) -- 7,104,296
Equipment 454,167 74,977 (99,634) -- 429,510
Prepaid lease 1,460,657 -- -- -- 1,460,657
Construction-in-progress 577,318 1,868,688 -- -- 2,446,006
------------------------------------------------------------------------
$15,588,175 $ 2,029,535 $ (160,777) $ -- $17,456,933
========================================================================

</TABLE>

F-39

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment

- ------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E Col. F
- ------------------------------------------------------------------------------------------------------
Balance at Additions Other Balance at
Beginning of at Charges End of
year Cost Retirements Add (Deduct) Year
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Land improvements $ 165,273 $ 33,818 $ -- $ -- $ 199,091
Buildings and improvements 1,649,789 608,413 -- -- 2,258,202
Equipment 213,855 53,212 -- -- 267,067
Prepaid lease 1,069,229 208,668 -- -- 1,277,897
------------------------------------------------------------------
$3,098,146 $ 904,111 $ -- $ -- $4,002,257
==================================================================

Year ended December 31, 1995:
Land improvements $ 136,500 $ 28,773 $ -- $ -- $ 165,273
Buildings and improvements 3,438,589 464,927 (507,375) (1,746,352) 1,649,789
Equipment 255,620 55,538 (18,281) (79,022) 213,855
Prepaid lease 860,561 208,668 -- -- 1,069,229
------------------------------------------------------------------
$4,691,270 $ 757,906 $ (525,656) $(1,825,374) $3,098,146
==================================================================

Year ended December 31, 1994:
Land improvements $ 102,210 $ 34,290 $ -- $ -- $ 136,500
Buildings and improvements 3,185,470 292,734 (26,927) (12,688) 3,438,589
Equipment 324,196 32,854 (101,430) -- 255,620
Prepaid lease 651,893 208,668 -- -- 860,561
------------------------------------------------------------------
$4,263,769 $ 568,546 $ (128,357) $ (12,688) $4,691,270
==================================================================

</TABLE>

F-40

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Schedule VIII - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>

Balance at Charged to Charged
beginning costs and to other Balance at
Description of year expenses expenses Deductions end of year
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:

Allowance for doubtful accounts $66,000 $31,800 $ -- $ -- $97,800
------------------------------------------------
Total ......................... $66,000 $31,800 $ -- $ -- $97,800
================================================
Year ended December 31, 1995:

Allowance for doubtful accounts $ -- $66,000 $ -- $ -- $66,000
------------------------------------------------
$ -- $66,000 $ -- $ -- $66,000
================================================
Year ended December 31, 1995:

Allowance for doubtful accounts $ -- $ -- $ -- $ -- $ --
------------------------------------------------
Total ......................... $ -- $ -- $ -- $ -- $ --
================================================
</TABLE>

F-41

<PAGE>

Lockhart Caribbean Corporation And Subsidiaries
Schedule XI - Real Estate And Accumulated Depreciation
December 31, 1996

<TABLE>
<CAPTION>
Cost Capitalized Gross amount at
Initial Cost to Company subsequent to acquisition December 31, 1996
----------------------------- ------------------------- ----------------------------
Land and Land Buildings and Carrying Land Buildings and
Description Encumbrances Improvements Improvements Improvements Costs Improvements Improvements
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Drakes Passage
Charlotte Amalie ......... Mortgage lien
St. Thomas ............... $ 5,000 $ 40,000 $ 614,498 -- $ 5,000 $ 654,498
Retail/office complex

Grand Hotel
Charlotte Amalie,
St. Thomas
Retail/office complex .... Mortgage lien 264,743 65,000 4,479,522 -- 264,743 4,511,028

Lockhart Gardens Shopping
Center, Estate Thomas,
St. Thomas
Shopping Center .......... Mortgage lien 33,887 497,380 10,003,692 -- 33,887 7,410,391

Sugar Estate Park
Estate Thomas,
St. Thomas
Business Park ............ Mortgage lien 277,172 -- 1,099,750 -- 1,376,922 --

Cinema One Building
Estate Thomas,
St. Thomas ............... 5,000 -- -- -- 5,000

Red Hook Shopping Center
Red Hook, St. Thomas ..... Mortgage lien
Shopping Center .......... 1,013,862 4,971,608 239,943 -- 1,013,862 5,211,551

Fort Mylner Commercial
Center
Estate Tutu, St. Thomas .. Mortgage lien
Office Building .......... 646,910 1,218,220 -- -- 646,910 1,218,220

</TABLE>

<TABLE>
<CAPTION>
Accumulated Date of Date Useful
Description Total Description Construction Acquired Life
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Drakes Passage
Charlotte Amalie
St. Thomas ............ $ 659,498 $ 55,500 1920 31.5
Retail/office complex

Grand Hotel
Charlotte Amalie,
St. Thomas
Retail/office complex.. 4,775,771 750,873 1914 31.5

Lockhart Gardens Shopping
Center, Estate Thomas,
St. Thomas
Shopping Center ....... 7,444,276 981,695 1972 31.5

Sugar Estate Park
Estate Thomas,
St. Thomas
Business Park ......... 1,376,922 199,718 1991 31.5

Cinema One Building
Estate Thomas,
St. Thomas ............ 5,000 --

Red Hook Shopping Center
Red Hook, St. Thomas ..
Shopping Center ....... 6,225,413 315,780 1995 31.5

Fort Mylner Commercial
Center
Estate Tutu, St. Thomas
Office Building ....... 1,865,130 19,427 1996 31.5
</TABLE>

F-42

<PAGE>

Cost Capitalized Gross amount at
Initial Cost to Company subsequent to acquisition December 31, 1996
----------------------------- ------------------------- ----------------------------
Land and Land Buildings and Carrying Land Buildings and
Description Encumbrances Improvements Improvements Improvements Costs Improvements Improvements
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>

Fort Mylner Shopping
Center
Estate Tutu, St. Thomas Mortgage lien
Shopping Center ....... 1,825,144 2,743,426 -- -- 1,825,144 2,743,426

Orange Grove Shopping
Center
Orange Grove, St. Croix Mortgage lien
Shopping Center ....... 501,997 3,082,428 -- -- 501,997 3,082,428

Corporate Office Building
Estate Thomas, Mortgage lien
St. Thomas ............ -- 202,295 34,573 -- -- 236,867

Undeveloped Land ............ 4,335,771 -- -- -- 4,335,771 --
----------- ----------- ----------- ------ ----------- -----------
$ 8,909,486 $12,820,357 $16,471,978 $10,009,236 $25,068,409
=========== =========== =========== ====== =========== ===========

</TABLE>

<TABLE>
<CAPTION>
Accumulated Date of Date Useful
Description Total Description Construction Acquired Life
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fort Mylner Shopping
Center
Estate Tutu, St. Thomas
Shopping Center ....... 4,568,570 43,456 1996 31.5

Orange Grove Shopping
Center
Orange Grove, St. Croix
Shopping Center ....... 3,584,425 48,927 1996 31.5

Corporate Office Building
Estate Thomas,
St. Thomas ............ 236,867 41,917 1990 31.5

Undeveloped Land ............ 4,335,771 --
----------- ----------
$35,077,643 $2,457,293
=========== ==========

</TABLE>

F-43

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Schedule XI - Real Estate and
Accumulated Depreciation (Continued)

Reconciliation - Land and Land Improvements

Year ended December 31
---------------------------------------
1996 1995 1994
---- ---- ----
Balance at beginning of year . $ 7,030,326 $6,016,464 $6,015,552

Additions during the year:
Acquisitions ........... 2,974,051 1,013,862 --
Improvements ........... 12,366 -- 912
---------------------------------------
Total additions .............. 2,986,417 1,013,862 912

Deductions during the year:
Cost of real estate sold (7,507) -- --
---------------------------------------
Balance at end of year ....... $ 10,009,236 $7,030,326 $6,016,464
=======================================

F-44

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Schedule XI - Real Estate and
Accumulated Depreciation (Continued)

Reconciliation - Buildings and Improvements

Year ended December 31
------------------------------------------
1996 1995 1994
---- ---- ----
Balance at beginning of year ...... $11,548,709 $ 7,104,296 $ 7,080,481

Additions during the year:
Acquisitions ................ 7,044,074 4,955,148 --
Improvements ................ 6,475,626 2,595,364 84,958
------------------------------------------
Total additions ................... 13,519,700 7,550,512 84,958

Deductions during the year:
Write-offs - full depreciated -- (507,375) --
Write-offs - damaged (1) .... -- (2,598,724) (61,143)
------------------------------------------
Total deductions .................. -- (3,106,099) (61,143)
------------------------------------------
Balance at end of year ............ $25,068,409 $ 11,548,709 $ 7,104,296
==========================================

Notes:
(1) Properties damaged by Hurricane Marilyn in September 1995 were written off
in that year.

F-45

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Schedule XI - Real Estate and
Accumulated Depreciation (Continued)

Reconciliation - Accumulated Depreciation

Year ended December 31
----------------------------------------
1996 1995 1994
---- ---- ----
Balance at beginning of year ........ $1,815,062 $ 3,575,089 $ 3,287,680

Additions during the year:
Depreciation expense .......... 642,231 493,700 327,024
----------------------------------------
Total additions ..................... 642,231 493,700 327,024

Deductions during the year:
Retirements - fully depreciated -- (507,375) --
Retirements - damaged ......... -- (1,746,352) (39,615)
----------------------------------------
Total deductions .................... -- (2,253,727) (39,615)
----------------------------------------
Balance at end of year .............. $2,457,293 $ 1,815,062 $ 3,575,089
========================================

F-46

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Schedule XII - Mortgage Loans on Real Estate
December 31, 1996

Principal
amount
of loans
Carrying subject to
Periodic Face amount delinquent
Interest Final maturity payment Prior amount of of principal or
Description rate date terms liens mortgages mortgages interest
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First and second mortgage 8.75% April 1, 2000 Principal and interest $14,600,000 $14,600,000
note payable to a financial payments of $125,032 per month
Institution. Interest is after interest only period of
prime plus 0.5% six months. Final balloon
payment of approximately $14.1
million.

First mortgage note payable 8.75% April 1, 2000 Principal and interest payments $ 4,500,000 $ 4,500,000
to a financial institution. of $38,537 per month after
Interest is prime plus 0.5% interest only period of
six months. Final balloon
payment of approximately $4.3
million.

First mortgage note payable 9.75% June 1, 1999 Note is payable in monthly $ 1,135,000 $ 813,394
to a financial institution. principal installments of
Interest is prime plus 1.5% $6,306 plus interest on
outstanding balance. Final
balloon payment of $630,520.

First mortgage note payable 8.75% March 1, 2004 Principal and interest payments $ 4,700,000 $ 4,672,065
to seller. Interest is of $36,975. Final balloon
at 8.75% payment of approximately $4.3
million.

Non-revolving line of credit 8.75% April 1, 2000 Monthly interest payments $ 1,000,000 $ 300,000
promissory note to a financial at prime plus 0.5% on
institution. Interest is outstanding balance. Balance
prime plus 0.5% outstanding due and payable
on April 1, 2000. At no time
amount outstanding to exceed $1
million.
------------------------
$25,935,000 $24,885,459
========================
</TABLE>

F-47

<PAGE>

Lockhart Caribbean Corporation and Subsidiaries
Schedule XII - Mortgage Loans on Real Estate (Continued)

Reconciliation - Mortgage Notes

Year ended December 31
1996 1995 1994
-------------------------------------------
Balance at beginning of year $ 12,641,454 $ 6,598,034 $ 5,121,492

Additions during the year:
New mortgage loans 29,800,000 6,334,260 1,688,870
-------------------------------------------

Total additions 29,800,000 6,334,260 1,688,870

Deductions during the year:
Principal payments (17,555,995) (290,840) (212,328)
-------------------------------------------

Total deduction (17,555,995) (290,840) (212,328)
-------------------------------------------

Balance at end of year $ 24,885,459 $ 12,641,454 $ 6,598,034
===========================================

Notes:
(1) In 1996 H.E. Lockhart Management, Inc. (HELM) a wholly owned subsidiary of
the Company, negotiated the following new mortgage notes:
- mortgage note for $14.6 million
- mortgage note for $4.5 million
- non-revolving line of credit for $1 million; $300,000 was drawn on
line
- a bridge loan for $10.4 million to facilitate purchase of three
properties

In 1996 HELM retired the following notes:

- bridge loan for $10.4 million
- mortgage note for $3.7 million
- mortgage note for $1.9 million
- mortgage note for $1.3 million

F-48

<PAGE>

Report of Independent Auditors

The Board of Directors and Shareholders
Lockhart Caribbean Corporation

We have audited the accompanying balance sheets of Lockhart Caribbean
Corporation (Parent Company Only) (the "Company") as of December 31, 1996 and
1995, and the related statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

As discussed in Note 1 to the financial statements, the accompanying financial
statements include only the accounts of the parent company and, therefore, do
not represent the primary entity. The primary financial statements of the
Company, which include the consolidated balance sheet, and the related
consolidated statements of operations, shareholders' equity, and cash flows of
the Company and H.E. Lockhart Management, Inc. ("HELM") and Lockhart Realty,
Inc., ("LRI") its wholly-owned subsidiaries, have been issued under a separate
report. The Company accounts for its investment in HELM and LRI under the equity
method in the accompanying financial statements.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lockhart Caribbean Corporation
(Parent Company Only) at December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

San Juan, Puerto Rico
March 7, 1997 except for Note 4 as to
which the date is October 22, 1997

F-49

<PAGE>

LOCKHART CARIBBEAN CORPORATION
(Parent Company Only)

Balance Sheets

December 31
-----------------------------
1996 1995
---- ----
Assets
Property:
Land .............................. $ 4,335,771 $ 4,343,278
Construction-in-progress .......... 53,250 71,631
----------- -----------
Total property ............................. 4,389,021 4,414,909
Cash and cash equivalents .................. 93,398 146,862
Accounts receivable:
Shareholders ...................... 97,568 97,043
Due from affiliates ............... 2,021,338 2,181,669
Other ............................. 43,115 3,260
----------- -----------
140,683 100,303
Prepaid expenses ........................... 189,474 191,663
Investments in subsidiaries ................ 2,832,300 3,796,692
Deferred income taxs ....................... 178,285 88,346
Other assets ............................... 52,573 --
----------- -----------
Total ...................................... $ 9,897,072 $10,920,444
=========== ===========

F-50

<PAGE>

December 31
-------------------------
1996 1995
---- ----
Liabilities and shareholders' equity
Liabilities:
Property taxes ............................ $ 154,549 $ 77,275
Tenant security deposits .................. 900 900
Accounts payable .......................... 2,633 --
Accrued expenses and other liabilities .... 41,427 39,301
Due to affiliates ......................... 1,363,593 1,474,112
----------- -----------
Total liabilities .................................. 1,563,102 1,591,588

Shareholders' equity:
Preferred stock, par value $.01:
Authorized shares -- 1,000,000, none issued
Class A common stock, par value $.01:
Authorized shares -- 40,000,000, none issued
Class B common stock, par value $.01
Authorized shares -- 9,000,000
Issued and outstanding shares--8,622,155
in 1996 and 8,525,543 in 1995 ........ 86,222 85,255
Additional paid-in capital ............... 6,669,379 6,501,909
Retained earnings ........................ 1,578,369 2,741,692
----------- -----------
Total shareholders' equity ......................... 8,333,970 9,328,856

Total liabilities and shareholders' equity ......... $ 9,897,072 $10,920,444
=========== ===========

See accompanying notes.

F-51

<PAGE>

LOCKHART CARIBBEAN CORPORATION
(Parent Company Only)

Statements of Operations

<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------
1996 1995 1994
---- ---- ----
Income:
<S> <C> <C> <C>
Rental Income ........................... $ 11,140 $ 21,300 $ 10,584
Other operating income .................. 25,823 32,713 37,862
----------- ----------- -----------
Total income ..................................... 36,963 54,013 48,446

Operating expenses:
Operating and maintenance ............... 2,330 13,052 1,425
Directors' fees ......................... 195,500 325,255 171,520
Insurance ............................... 2,189 8,834 6,286
Other taxes ............................. 86,954 97,649 77,685
Professional fees ....................... 25,448 37,896 27,654
Other general and administrative ........ 13,103 19,216 98
----------- ----------- -----------
Total operating expenses ......................... 325,524 501,902 284,668
Operating loss ................................... (288,561) (447,889) (236,222)

Other income (expense):
Other expenses .......................... (4,136) (4,678) (1,140)
Gain on disposal of operating property .. 86,440 -- --
Equity in undistributed (losses)/earnings
of subsidiaries ................ (716,392) 2,787,182 97,330
----------- ----------- -----------
Total other income (expense) ..................... (634,088) 2,782,504 96,190
(Loss) income before income tax (benefit) ........ (922,649) 2,334,615 (140,032)

Income tax (benefit):
Current ................................. -- (80,914) --
Deferred ................................ (89,939) (88,346) (88,774)
----------- ----------- -----------
(89,939) (169,260) (88,774)
Net (loss) income ................................ $ (832,710) $ 2,503,875 $ (51,258)
=========== =========== ===========
</TABLE>

See accompanying notes.

F-52

<PAGE>

LOCKHART CARIBBEAN CORPORATION
(Parent Company Only)

Statements of Shareholders' Equity
<TABLE>
<CAPTION>

Additional
Paid-In Retained
Common Stock Capital Earnings Total
------------ ------- -------- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1994 . $ 81,967 $ 6,030,043 $ 931,460 $ 7,043,470
Issuance of common stock ... 1,379 187,676 189,055
Net loss ................... (51,258) (51,258)
Cash dividends ............. (317,898) (317,898)
----------- ----------- ----------- -----------
Balance at January 1, 1995 . 83,346 6,217,719 562,304 6,863,369
Issuance of common stock ... 1,909 284,190 286,099
Net income ................. 2,503,875 2,503,875
Cash dividends ............. (324,487) (324,487)
----------- ----------- ----------- -----------
Balance at December 31, 1995 85,255 6,501,909 2,741,692 9,328,856
Issuance of common stock ... 967 167,470 168,437
Net loss ................... (832,710) (832,710)
Cash dividends ............. (330,613) (330,613)
----------- ----------- ----------- -----------
Balance at December 31, 1996 $ 86,222 $ 6,669,379 $ 1,578,369 $ 8,333,970
=========== =========== =========== ===========
</TABLE>

See accompanying notes.

F-53

<PAGE>

LOCKHART CARIBBEAN CORPORATION
(Parent Company Only)

Statements of Cash Flows

Year ended December 31
------------------------------------------
1996 1995 1994
---- ---- ----
Operating activities
<S> <C> <C> <C>
Net (loss) income ................................. $ (832,710) $ 2,503,875 $ (51,258)
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Equity in undistributed (losses)/earnings of
subsidiaries ............................. 716,392 (2,787,182) (97,330)
Deferred income taxes ....................... (89,939) (88,346) (88,774)
Gain on disposal of operating property ...... (86,440) -- --
Changes in operating assets and liabilities:
Accounts and note receivable ............. 2,735 5,688 95,209
Prepaid expenses ......................... 2,189 (82,617) 452
Other assets ............................. (52,573) -- --
Tenant security deposits ................. -- -- 900
Accounts payable and accrued expenses .... 82,033 73,087 (81,706)
Due to/from affiliates ................... 297,812 (219,306) 438,825
----------- ----------- -----------
Net cash provided by operating activities ......... 39,499 (594,801) 25,900

Investing activities
Sale of land ...................................... 80,405 -- --
Acquisition of other operating property ........... (11,192) (22,110) (912)
----------- ----------- -----------
Net cash provided by (used in) investing activities 69,213 (22,110) (912)

Financing activities
Proceeds from issuance of common stock ............ 256,513 286,099 189,055
Repurchase of common stock ........................ (88,076) -- --
Cash dividends .................................... (330,613) (324,487) (317,898)
----------- ----------- -----------
Net cash used in financing activities ............. (162,176) (38,388) (128,843)
----------- ----------- -----------
Net decrease in cash and cash equivalents ......... (53,464) (655,299) (103,855)
Cash and cash equivalents at beginning of year .... 146,862 802,161 906,016

Cash and cash equivalents at end of year .......... $ 93,398 $ 146,862 $ 802,161
=========== =========== ===========
</TABLE>

See accompanying notes.

F-54

<PAGE>

LOCKHART CARIBBEAN CORPORATION
(Parent Company Only)

Notes to Financial Statements

December 31, 1996

1. Summary of Significant Accounting Policies

Description of Business

Lockhart Caribbean Corporation ("LCC") is organized as a United States Virgin
Islands corporation engaged in owning, developing and leasing commercial and
residential real estate. LCC leases developed land, and retail and office space
to customers under month-to-month and long-term leases through its wholly-owned
subsidiaries H.E. Lockhart Management, Inc. ("HELM") and Lockhart Realty, Inc.
("LRI").

Use of Estimates

The financial statements have been prepared in conformity with generally
accepted accounting principles which requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Investments in Subsidiaries

The Company owns 100% of the shares of H.E. Lockhart Management, Inc. and
Lockhart Realty, Inc. The Company accounts for its investments under the equity
method in the accompanying financial statements. Summarized financial
information of HELM and LRI as of December 31, 1996 and 1995 and for the three
years in the period ended December 31, 1996 is as follows:

December 31 For the year ended December 31
---------------------------- -------------------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
HELM:
Total assets ......... $ 30,239,281 $ 19,415,143
Shareholder's equity . 3,027,700 3,955,399
Revenues ............. $ 3,803,035 $ 3,555,762 $ 2,664,318
Net (loss)/income .... (807,699) 2,695,835 3,612
LRI:
Total assets ......... 1,448,294 1,381,837
(Deficiency in assets) (195,400) (158,707)
Revenues ............. 406,584 392,609 393,438
Net income ........... 91,307 91,347 93,718
</TABLE>

F-55

<PAGE>

LOCKHART CARIBBEAN CORPORATION
(Parent Company Only)

Notes to Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

Cash Equivalents

Cash equivalents consist of short-term, highly liquid investments with a
maturity of three months or less when purchased.

Land

Land stated on the basis of cost.

Construction-in-Progress

Long-Lived Assets

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The Company adopted SFAS No. 121 in 1995, which had no material effect on
the Company's financial statements. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset, a loss is
recognized for the difference between the fair value and carrying value of the
asset.

Fair Values of Financial Instruments

The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and cash equivalents approximate those assets' fair values.

2. Income Taxes

At December 31, 1996 the Company has operating loss carryforwards of
approximately $1,029,000 and $346,000 available to offset future taxable income
through the years 2011 and 2010, respectively.

F-56

<PAGE>

LOCKHART CARIBBEAN CORPORATION
(Parent Company Only)

Notes to Financial Statements (continued)

3. Transactions with Related Parties

The amounts due from shareholders bear interest at 9% and have no specific
repayment terms.

A shareholder of the Company and member of the board of directors is also a
partner of a law firm which renders legal services to the Company. During the
years ended December 31, 1996, 1995 and 1994 fees paid to the law firm amounted
to approximately $20,400, $22,000 and $24,000, respectively.

LCC has guaranteed bank borrowings by HELM amounting to approximately
$20,150,000 at December 31, 1996.

As part of HELM's loan agreement with a financial institution, the dividends
from HELM to LCC are limited to a maximum of $500,000 per year without the
consent of the financial institution.

4. Subsequent Events

On October 3, 1997 the Company executed a Stock Purchase Agreement to purchase
all the outstanding common stock of Premium Finance Company of the V.I., Inc.
("PFC") for $687,500. PFC finances insurance premiums for individual and
businesses primarily in the U.S. Virgin Islands, the British Virgin Islands and
Anguilla. The acquisition is dependent upon receiving regulatory approval and
approval of PFC's shareholders. In addition, the Company has agreed to guarantee
a bank loan to a wholly-owned subsidiary of PFC amounting to $200,000.

On July 5, 1997 the shareholders of The Lockhart Companies Incorporated ("LCI")
voted to restructure and recapitalize the Company and to offer common stock to
the public in an initial public offering to be registered with the Securities
and Exchange Commission. In connection with the restructuring and
recapitalization, LCI was reincorporated as Lockhart Caribbean Corporation
("LCC") on August 22, 1997 as a U.S. Virgin Islands corporation. On the same
date, the shareholders of LCI exchanged each of their shares for 9.7 shares of
Class B Common Stock of LCC. The transaction has been accounted for in a manner
similar to a pooling-of-interests and, accordingly, the financial statements as
of and for the years ended December 31, 1996, 1995 and 1994 have been restated
to give retroactive recognition to the transaction.

One of HELM's major tenants advised HELM that it intends to vacate the premises
in October 1997. The tenant's lease does not expire until 2001, and it is
obligated to make base rental payments until 2001. The Company and the tenant
are negotiating an amicable settlement and seeking a suitable replacement
tenant. The tenant's annual base rent is approximately $240,000 per year. On
October 22, 1997, HELM signed a lease agreement with a suitable replacement
tenant.

F-57

<PAGE>

Report of Independent Auditors

Board of Directors
Premium Finance Company of the V.I., Inc.
St. Croix, U.S. Virgin Islands

I have audited the accompanying balance sheet of Premium Finance Company of the
V.I., Inc. as of December 31, 1996, 1995 and 1994 and the related statement of
income and deficit and cash flows for the twelve months ended December 31, 1996
and 1995 and the seven months ended December 31, 1994. These financial
statements are the responsibility of the company's management. My responsibility
is to express an opinion on these financial statements based on the audit.

I conducted the audit in accordance with generally accepted auditing standards.
These standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements presentation. An audit
also includes assessing the principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that the audits provide a reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Premium Finance Company of the
V.I., Inc. as of December 31, 1996, 1995 and 1994 and the results of its
operations and its cash flows for the twelve months ended December 31, 1996 and
1995 and the seven months ended December 31, 1994 in conformity with generally
accepted accounting principles.

Respectfully submitted,

Francisco E. Depusoir
Certified Public Accountant
St. Croix, U.S. Virgin Islands

March 21, 1997

F-58

<PAGE>

PREMIUM FINANCE COMPANY OF THE V.I., INC.
BALANCE SHEETS
DECEMBER 31,

1996 1995 1994

ASSETS
Current Assets:
Cash and cash equivalents $ 110,397 $ 93,499 $144,696
Finance receivables-net 1,080,434 684,591 250,367
Other receivables 3,740 771 --
Prepaid expenses 8,382 4,366 3,140
---------- -------- --------

Total current assets 1,202,953 783,227 398,203

Fixed Assets:
Property and equipment (net of
accumulated depreciation of
$25,037 - 1996; $16,960 - 1995 and
$4,505 - 1994) - Note 1 (a) 17,488 23,396 35,851

Other Assets:
Organization cost - net - Note 1 (b) 19,096 24,364 27,409
Deposits 8,267 2,267 2,266
---------- -------- --------
Total assets $1,247,804 $833,254 $463,279
========== ======== ========

LIABILITIES & STOCKHOLDERS' EQUITY

Current Liabilities:
Operating line of credit - Note 5 $ 550,000 $300,000 $ --
Bank overdraft 235,495 112,299 --
Accrued expenses 5,763 1,472 3,086
Accrued vacation expenses 4,917 -- --
Due to Island National Insurance
Company - Note 2 -- 525 847
---------- -------- --------
Total current liabilities 796,175 414,296 3,933
---------- -------- --------

STOCKHOLDERS' EQUITY

Capital stock - Note 3 500,000 500,000 500,000
Deficit - Per Page 5 ( 48,371) ( 81,042) ( 40,204)
---------- -------- --------
Total stockholders' equity 451,629 418,958 459,796
---------- -------- --------
Total liabilities and
stockholders' equity $1,247,804 $833,254 $463,729
========== ======== ========

The accompany notes are an integral part of this report

F-59

<PAGE>

PREMIUM FINANCE COMPANY OF THE V.I., INC.
STATEMENTS OF INCOME AND DEFICIT
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 AND 1995
AND THE SEVEN MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>

REVENUES:
1996 1995 1994
12 Months 12 Months 7 Months
--------- --------- --------
<S> <C> <C> <C>
Interest Income $299,206 $123,876 $27,453
Service Income 104,578 61,541 14,967
Miscellaneous Income -- -- 10
-------- -------- -------
Total revenues 403,784 185,417 42,430
-------- -------- -------

EXPENSES:
Salaries and wages 83,848 64,672 34,254
Interest 72,342 17,418 --
Service charges 54,672 32,511 6,491
Travel and entertainment 24,852 12,188 3,123
Insurance 17,048 13,073 3,012

Gross receipts taxes 15,700 7,115 --
Stationery and supplies 15,285 10,120 6,588
Telephone 8,937 6,178 3,402
Depreciation 8,078 12,455 4,505
Rent 7,725 7,463 4,200

Payroll taxes 7,848 7,594 2,473
Amortization 6,440 6,206 3,620
Professional fees 6,217 113 2,500
Advertising 5,560 9,970 --
Marketing 5,147 5,096 --
Vacation expense 4,917 -- --

Office expenses 4,633 2,527 1,468
Leases 3,767 2,734 1,570
Repairs and maintenance 3,702 3,528 1,764
Utilities 2,970 1,641 --
Licenses and taxes 1,970 1,835 857
Miscellaneous 9,455 1,818 2,807

Total expenses 371,113 226,255 82,634
-------- -------- -------

Net Income (Loss) 32,671 ( 40,838) (40,204)

Deficit - January 1 ( 81,042) ( 40,204) --
-------- -------- -------

Deficit - December 31 $(48,371) $(81,042) $(40,204)
======== ======== =======

</TABLE>

The accompanying notes are an integral part of this report

F-60

<PAGE>

PREMIUM FINANCE COMPANY OF THE V.I., INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>

1996 1995 1994
12 Months 12 Months 7 Months
--------- --------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 32,671 $(40,838) $( 40,204)
Adjustment to reconcile net income
(loss) to net cash used (provided)
by operating activities:
Depreciation and amortization 14,518 18,661 8,125
--------- -------- ----------

47,189 ( 22,177) ( 32,079)

Changes in Operating Assets and
Liabilities providing (using) cash:
Increase in other receivables ( 2,969) ( 771) ---
Increase in due to Island
National Insurance Company ( 525) ( 322) 847
Increase in prepaid expenses ( 4,016) ( 1,226) ( 3,140)
(Decrease) increase in accrued
expenses 4,291 ( 1,614) 3,086
Increase in accrued vacation 4,917 --- ---
Increase in bank overdraft 123,196 112,299 ---
---------- -------- ---------

Net cash provided (used) in
operating activities 172,083 86,189 ( 31,286)
---------- -------- --------

Cash Flows from Investing Activities:
Finance receivables-net ( 395,843) ( 434,224) ( 250,367)
Purchase of property & equipment ( 2,169) --- ( 40,356)
Organization costs ( 1,173) ( 3,161) ( 31,029)
Deposits ( 6,000) ( 1) ( 2,266)
---------- -------- --------

Net cash provided (used) in
investing activities ( 405,185) ( 437,386) ( 324,018)
---------- -------- --------

Cash Flows from Financing Activities:
Borrowings on line of credit 400,000 450,000 ---
Repayment on line of credit ( 150,000) ( 150,000) ---
Proceeds from issuance of shares --- --- 500,000
---------- -------- --------

Net cash provided by
financing activities 250,000 300,000 500,000
---------- -------- --------

Increase (decrease) in cash and
cash equivalents 16,898 ( 51,197) 144,696
Cash & cash equivalents, January 1 93,499 144,696 ---
---------- -------- --------

Cash & cash equivalents, December 31 $110,397 $ 93,499 $144,696
========= ======== ========
</TABLE>

The accompanying notes are an integral part of this report

F-61

<PAGE>

PREMIUM FINANCE COMPANY OF THE V.I., INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

The Company was incorporated on December 10, 1993 in the U.S. Virgin Islands and
began doing business on June 1, 1994. Its primary activity is to acquire premium
finance agreements with insureds and from other premium finance companies.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
a) Property and Equipment

Property and equipment are purchased by the company and recorded
at cost. Assets are depreciated over their useful lives using
the straight line method.

Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized. When property is sold
or otherwise disposed of, the asset account and related
depreciation are reduced and any gain or loss is included in
operations. Depreciation expense for the years ended December
31, 1996, 1995 and 1994 was $8,078, $12,455 and $4,505,
respectively.

Property and equipment consist of the following:

Accumulated Net Book
Description Cost Depreciation Value
----------- ---- ------------ -----

Computer
equipment $20,844 $12,174 $ 8,670

Air conditioning 2,500 1,572 928

Furniture and
fixtures 6,110 3,073 3,037

Miscellaneous
equipment 650 409 241

Leasehold
improvement 12,421 7,809 4,612
------- ------- -------

$42,525 $25,037 $17,488
======= ======= =======

F-62

<PAGE>
PREMIUM FINANCE COMPANY OF THE V.I., INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
---------------------------------------------------

b) Organization Costs
------------------
Organization costs represent expenses associated with the
incorporation and setting up of the Corporation. Organization
costs are amortized over five years using the straight line
method.

c) Revenues and Expenses Recognition
---------------------------------
Revenues are recognized when earned and expenses when incurred.

Interest income from finance receivables is recognized using the
rule of 78s method, which approximates the interest method.

d) Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

e) Compensated Absences
--------------------
Employees of the company are entitled to paid vacations, sick
days and personal days off, depending on the length of service
and other factors. Compensated absences at December 31, 1996 was
$4,917.

f) Finance Receivables
-------------------

Finance receivables that management has the intent and ability
to hold for the foreseeable future or until maturity or pay off
are reported at their outstanding unpaid principal balances
reduced by any charge off and not of any unearned interest.

Credit losses are charged to income and decrease to finance
receivables. The company charges off credit losses when financed
receivables are in excess of 120 days past due.

No provision for credit losses were presented in the financial
statement.

Finance receivables as of December 31, 1996 consisted of the
following:

1996 1995 1994
---- ---- ----
Consumer $ 698,773 $ 466,330 $ 230,878
Commercial 426,501 241,873 24,975
---------- ---------- -----------
1,125,274 708,203 255,853
Less: unearned
interest ( 44,209 ) ( 23,612) ( 5,486)
Credit losses ( 631 ) --- ---
---------- ------------ ------------
Finance receivables-
net $1,080,434 $ 684,591 $ 250,367
========= ======== ========

<PAGE>

NOTE 2 - RELATED PARTY TRANSACTIONS
--------------------------
The Company is related through common stock ownership to Carib
National Group, Inc., Island National Insurance Company, Fraser and
Company - Virgin Islands and Fraser and Company - Florida.

Entity 1996 1995 1994
------ ---- ---- ----
Due to Island National
Insurance Company $ --- $525 $847
---- ---- ----
Total $ --- $525 $847
==== ==== ====

F-63

<PAGE>

PREMIUM FINANCE COMPANY OF THE V.I., INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

NOTE 3 - CAPITAL STOCK
-------------
The Company is authorized to issue 500,000 shares of common stock at $1
par value. At the balance sheet date, 500,000 shares have been issued and
fully paid.

NOTE 4 - COMMITMENT
----------
The Company has a three year lease contract (with a three year renewal
option) in the Village Mall Shopping Center. The monthly rent is $600 and
the lease terminates on January 31, 1997. Rent expense for the years ended
December 31, 1996, 1995 and 1994 was $7,725, $7,463 and $4,200,
respectively.

NOTE 5 - OPERATING LINE OF CREDIT
------------------------
The Company has a line of credit available in the amount of $750,000 from
the Bank of Nova Scotia. At the end of the year, the company had a balance
due to the Bank of Nova Scotia of $550,000.

NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Cash paid for interest for the years ended December 31, 1996, 1995 and
1994 was $72,342, $17,418 and $-0-, respectively.

NOTE 7 - INCOME TAXES
------------
The Company is part of a group that files a consolidated tax return. The
corporation had no current or deferred income taxes during the current
year. Prior years net operating losses are available to offset future
taxable income for the combined group.

NOTE 8 - CONCENTRATION OF CREDIT RISK
----------------------------
The Company grants financing to customers seeking insurance financing. The
Company places its cash with high credit quality institutions. At time
such investments may be in excess of FDIC insurance limits.

F-64

<PAGE>

NOTE 9 - FAIR VALUES OF FINANCIAL INSTRUMENTS
------------------------------------

Statement of Financial Accounting No. 107, Disclosures about Fair Value of
Financial Instruments, requires disclosure of fair value information about
financial instruments, whether or not recognized in the statement of
financial condition. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instruments.
Statement No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts do not represent the underlying value of
the company.

The estimated fair value of the company's financial instruments are as
follows:

1996 1995 1994
---------------------- ----------------------- ----------------------
Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents $ 110,397 $ 110,397 $ 93,499 $ 93,499 $ 144,696 $ 144,696

Finance
receivables 1,080,434 1,080,434 684,591 684,591 250,367 250,367

Operating line of
credit 550,000 550,000 300,000 300,000 -- --

Bank overdraft 235,495 235,495 112,299 112,299 -- --
</TABLE>

F-65

<PAGE>

Report of Independent Auditors

The Board of Directors and Shareholders
Lockhart Caribbean Corporation

We have audited the accompanying statement of revenues and certain expenses (the
"Statements") of Red Hook Plaza, Inc., for the years ended December 31, 1996,
1995, and 1994. The Statements are the responsibility of the Property's
management. Our responsibility is to express an opinion on this Statement based
on our audit.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall Statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

The accompanying Statements were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for inclusion
in a Registration Statement on Form S-11 of Lockhart Caribbean Corporation,
previously known as The Lockhart Companies Incorporated) as described in Note 2
to the Statements and is not intended to be a complete presentation of the
revenues and expenses of Red Hook Plaza, Inc.

In our opinion, the Statements referred to above present fairly, in all material
respects, the revenues and certain expenses of Red Hook Plaza, Inc., for the
years ended December 31, 1996, 1995 and 1994 in conformity with generally
accepted accounting principles.

/s/ Ernst & Young LLP

San Juan, Puerto Rico
June 16, 1997

F-66

<PAGE>

Red Hook Plaza, Inc.

Statements of Revenues and Certain Expenses

Year ended December 31
1996 1995 1994
-----------------------------------------------------------------

<S> <C> <C> <C>
Revenues:
Rental income $693,929 $678,544 $599,926
Other income 120,456 78,185 71,683
-----------------------------------------------------------------
814,385 756,729 671,609
-----------------------------------------------------------------

Certain expenses:
Property operating and maintenance 205,792 203,191 166,317
Real estate taxes 39,071 34,187 32,705
Management fees 33,617 -- --
-----------------------------------------------------------------
278,480 237,378 199,022
-----------------------------------------------------------------
Revenues in excess of certain
expenses $535,905 $519,351 $472,587
=================================================================

</TABLE>

See accompanying notes.

F-67

<PAGE>

Red Hook Plaza, Inc.

Notes to Statements of Revenues and Certain Expenses

Years ended December 31, 1996, 1995 and 1994

1. Organization

Red Hook Plaza, Inc. (the "Plaza"), consists of approximately 36,000 leasable
square feet located in the eastern side of St. Thomas, U.S. Virgin Islands. Red
Hook Plaza, Inc. is a wholly-owned subsidiary of H. E. Lockhart Management, Inc.
The Plaza is located in two buildings. The first building has both retail and
office space; the second building is used as a restaurant.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying statements of revenues and certain expenses related to the
operations of the Plaza for the years ended December 31, 1996, 1995 and 1994,
have been prepared for the purposes of complying with the rules and regulations
of the Securities and Exchange Commission (for inclusion in a registration
Statement on Form S-11 of Lockhart Caribbean Corporation, previously known as
The Lockhart Companies Incorporated). Expenses that are dependent on the
particular Plaza owner and the carrying value of the Plaza have been excluded
from the accompanying Statements. The excluded expenses consist primarily of
depreciation, amortization, mortgage interest and professional fees not directly
related to the future operations of the Plaza. Accordingly, the statements of
revenues and certain expenses are not intended to be a complete presentation of
the revenues and expenses of the Plaza.

Revenue Recognition

The Plaza is leased to tenants under lease terms that are greater than one year
and are accounted for as operating leases. Expenditures that are recoverable
from tenants are recognized as income in the period the related costs are
accrued.

Capitalization Policy

Ordinary repairs and maintenance are expensed as incurred. Major replacements
and betterments are capitalized.

Advertising Expense

The cost of advertising is expensed as incurred.

F-68

<PAGE>

Red Hook Plaza, Inc.

Notes to Statements of Revenues and Certain Expenses (continued)

3. Management Fees

Commencing in June 1996, Red Hook Plaza, Inc. is subject to a management
agreement with H.E. Lockhart Management, Inc., to maintain and manage the
operations of the property. The management fees are based on 8% of total
collected rental income, as defined, of the Plaza.

4. Future Minimum Lease Payments

The property is leased to tenants under operating leases expiring at various
dates through 2002. These leases contain provisions for rent increases based on
cost-of-living indices and certain leases contain renewal options. The minimum
future lease payments to be received under the terms of these operating leases
for each of the next five years and thereafter are as follows:

1997 $ 875,000

1998 920,000

1999 960,000

2000 1,000,000

2001 1,040,000

Thereafter 1,080,000
---------

Total future minimum lease payments $5,875,000
=========

F-69

<PAGE>

Report of Independent Auditors

The Board of Directors and Shareholders
Lockhart Caribbean Corporation

We have audited the accompanying statement of revenues and certain expenses (the
"Statement") of Fort Mylner Properties, Inc., for the twelve months ended June
30, 1997. The Statement is the responsibility of the Property's management. Our
responsibility is to express an opinion on this Statement based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the Statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall Statement presentation. We believe that our audit
provides a reasonable basis for our opinion.

The accompanying Statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for inclusion
in a Registration Statement on Form S-11 of Lockhart Caribbean Corporation,
previously known as The Lockhart Companies Incorporated) as described in Note 2
to the Statement and is not intended to be a complete presentation of the
revenues and expenses of Fort Mylner Properties, Inc.

In our opinion, the Statement referred to above presents fairly, in all material
respects, the revenues and certain expenses of Fort Mylner Properties, Inc., for
the twelve months ended June 30, 1997 in conformity with generally accepted
accounting principles.

/s/ Ernst & Young LLP

San Juan, Puerto Rico
August 1, 1997

F-70

<PAGE>

Fort Mylner Properties, Inc.

Statement of Revenues and Certain Expenses

Twelve Months Ended June 30, 1997

Revenues:
Rental income $ 823,915
Other income 100,099
-------------------
924,014
-------------------

Certain expenses:
Property operating and maintenance 225,936
Real estate taxes 51,487
-------------------
277,423
-------------------

Revenue in excess of certain expenses $ 646,591
===================

See accompanying notes.

F-71

<PAGE>

Fort Mylner Properties, Inc.

Notes to Statement of Revenues and Certain Expenses

Twelve Months Ended June 30, 1997

1. Organization

Fort Mylner Properties, Inc., ("Fort Mylner") a wholly-owned subsidiary of H.E.
Lockhart Management, Inc., consists of the Fort Mylner Commercial Center with
approximately 10,800 square feet of rentable office space and the Fort Mylner
Shopping Center with approximately 26,200 square feet of rentable office and
retail space. Fort Mylner is located in the commercial district of the Tutu
area, one of the most populous areas in St. Thomas, U.S. Virgin Islands.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying statement of revenues and certain expenses relates to the
operations of Fort Mylner for the twelve months ended June 30, 1997, and has
been prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in a registration Statement on
Form S- 11 of Lockhart Caribbean Corporation, previously known as the Lockhart
Companies Incorporated). Expenses that are dependent on the particular Fort
Mylner owner and the carrying value of Fort Mylner have been excluded from the
accompanying Statement. The excluded expenses consist primarily of depreciation,
amortization, mortgage interest and professional fees not directly related to
the future operations of Fort Mylner. Accordingly, the statement of revenues and
certain expenses is not intended to be a complete presentation of the revenues
and expenses of Fort Mylner.

Revenue Recognition

The properties are leased to tenants under lease terms that are greater than one
year and are accounted for as operating leases. Expenditures that are
recoverable from tenants are recognized as income in the period the related
costs are accrued.

Capitalization Policy

Ordinary repairs and maintenance are expensed as incurred. Major replacements
and betterments are capitalized.

Advertising Expense

The cost of advertising is expensed as incurred.

F-72

<PAGE>

Fort Mylner Properties, Inc.

Notes to Statement of Revenues and Certain Expenses (continued)

3. Future Minimum Lease Payments

Fort Mylner is leased to tenants under operating leases expiring at various
dates through 2005. These leases contain provisions for rent increases based on
cost-of-living indices and certain leases contain renewal options. The minimum
future lease payments to be received under the terms of these operating leases
for each of the next five years and thereafter are as follows:

1998 $ 951,600

1999 981,800

2000 1,014,800

2001 1,045,700

2002 1,077,900

Thereafter 3,435,100
---------

Total future minimum lease payments $8,506,900
=========

F-73

<PAGE>

Report of Independent Auditors

The Board of Directors and Shareholders
Lockhart Caribbean Corporation

We have audited the accompanying statement of revenues and certain expenses (the
"Statement") of Golden Orange Centers, Inc., for the twelve months ended June
30, 1997. The Statement is the responsibility of the Property's management. Our
responsibility is to express an opinion on this Statement based on our audit.

In our opinion, the Statement referred to above presents fairly, in all material
respects, the revenues and certain expenses of Golden Orange Centers, Inc., for
the twelve months ended June 30, 1997 in conformity with generally accepted
accounting principles.

/s/ Ernst & Young LLP

San Juan, Puerto Rico
August 1, 1997

F-74

<PAGE>

Golden Orange Centers, Inc.

Statement of Revenues and Certain Expenses

Twelve Months Ended June 30, 1997

Revenues:
Rental income $ 439,457
Other income 81,639
---------------
521,096
---------------

Certain expenses:
Property operating and maintenance 135,851
Real estate taxes 26,883
---------------
162,734
---------------

Revenue in excess of certain expenses $ 358,362
===============

See accompanying notes.

F-75

<PAGE>

Golden Orange Centers, Inc.

Notes to Statement of Revenue and Certain Expenses

Twelve Months Ended June 30, 1997

1. Organization

Golden Orange Centers, Inc., ("the Property"), a wholly owned subsidiary of H.
E. Lockhart Management, Inc., consists of approximately 36,000 leasable square
feet located outside Christiansted, in St. Croix, U.S. Virgin Islands. The
Company leases both office and retail space.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying statement of revenues and certain expenses relates to the
operations of the Property for the twelve months ended June 30, 1997, and has
been prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in a registration Statement on
Form S-11 of Lockhart Caribbean Corporation, previously known as the Lockhart
Companies Incorporated). Expenses that are dependent on the particular Property
owner and the carrying value of the Property have been excluded from the
accompanying Statement. The excluded expenses consist primarily of depreciation,
amortization, mortgage interest and professional fees not directly related to
the future operations of the Property. Accordingly, the statement of revenues
and certain expenses is not intended to be a complete presentation of the
revenues and expenses of the Property.

Revenue Recognition

The Property is leased to tenants under lease terms that are greater than one
year and are accounted for as operating leases. Expenditures that are
recoverable from tenants are recognized as income in the period the related
costs are accrued.

Capitalization Policy

Ordinary repairs and maintenance are expensed as incurred. Major replacements
and betterments are capitalized.

Advertising Expense

The cost of advertising is expensed as incurred.

F-76

<PAGE>

Golden Orange Centers, Inc.

Notes to Statement of Revenues and Certain Expenses (continued)

3. Future Minimum Lease Payments

The Property is leased to tenants under operating leases expiring at various
dates through 2005. These leases contain provisions for rent increases based on
cost-of-living indices and certain leases contain renewal options. The minimum
future lease payments to be received under the terms of these operating leases
for each of the next five years and thereafter are as follows:

1998 $ 531,600

1999 550,600

2000 567,800

2001 579,800

2002 604,700

Thereafter 1,897,100
---------

Total future minimum lease payments $4,731,600
=========

F-77

<PAGE>

APPENDIX A

SUBSCRIPTION AGREEMENT

LOCKHART CARIBBEAN CORPORATION

<PAGE>

How to Invest

LOCKHART CARIBBEAN CORPORATION
INSTRUCTIONS TO PURCHASERS

Lockhart Caribbean Corporation (the "Company") is offering up to 2,000,000 Units
on a best efforts basis. No Units will be sold until subscriptions for at least
1,153,846 Units are received. The minimum purchase is 100 Units. The initial
public offering price is $6.50 per Unit. Each Unit consists of one share of
Class A Common Stock and one Warrant. Shares of Class A Common Stock and the
Warrants may be transferred separately after their issuance. Each Warrant is
exercisable for a period of five years beginning one year from the date of this
Prospectus and entitles the holder to purchase one-tenth of one share of Class A
Common Stock for $9.75 per share.

The Company has filed a Registration Statement with the Securities and Exchange
Commission with respect to the Units. The Registration Statement includes a
Prospectus that describes the Company and the terms of this offering. Offers and
sales of the Units in this offering can only be made by means of the Prospectus.
Subscribers should carefully read the Prospectus prior to making an investment
decision and should pay particular attention to the considerations discussed
under "Risk Factors" in the Prospectus.

ACS Financial and Securities Services has agreed to collect subscriptions and
forward them to the Company for processing. All subscription funds for Units
will be deposited in an interest-bearing escrow account with The Chase Manhattan
Bank, until subscriptions for 1,153,846 Units are received.

Subscription Agreement Form

All purchasers of Units must fill out AND SIGN the Subscription Agreement
attached to the Prospectus or available to print from the web site. We cannot
process your payment nor can we issue your Class A Common Stock and related
Warrant certificates unless and until we receive this completed and signed
Subscription Agreement. If you do not have a printer or cannot download the
Subscription Agreement from our web site, you can receive a printed copy of the
Prospectus by calling the Company at (340)776-1900, and a Prospectus and a
Subscription Agreement will be sent to you. If you have a hard copy of the
Prospectus, use the Subscription Agreement form attached as Appendix A to the
Prospectus. Once the payment and signature are received, your stock purchase
will be processed promptly.

Do You Reside in a Jurisdiction Where the Company is Authorized to Make a Public
Offering of the Units?

At the present time, the Company is authorized to sell Units to residents
of the following jurisdictions: California, Colorado, Connecticut, Delaware,
Georgia, Hawaii, Indiana, Nevada, New Mexico, New York, Ohio, Rhode Island,
South Carolina, Virginia, the District of Columbia, Guam, Puerto Rico, and the
U.S. Virgin Islands.

If you reside in a country other than the United States or in the states of
Alabama, Alaska, Arizona, Arkansas, Florida, Idaho, Illinois, Iowa, Kansas,
Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota,
Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, North
Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, South Dakota, Tennessee,
Texas, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming, you will
not be able to invest in the Company, because we have not undertaken the expense
that would be needed to meet the public offering requirements of the laws of
these jurisdictions. However, you are still welcome to browse through our
Prospectus and to let us know if you might be interested in purchasing Units. If
there is sufficient interest from potential investors in your state, we may
decide to go through the process necessary for us to be able to offer Units to
you. In addition, the Company reserves the right to offer and sell the Units on
a limited basis in one or more states or foreign countries where an exemption
from registration in such state or foreign country is available.

S-1

<PAGE>

PAYMENT ALTERNATIVES

Mailed Check

1. Make your check payable to "The Chase Manhattan Bank, Escrow Agent for
Lockhart Caribbean Corporation", and along with the completed and signed
Subscription Agreement, mail to: Lockhart Caribbean Corporation, P.O. Box
683, Old Chelsea Station, New York, NY 10113-0955.

Money Order

2. Make your money order payable to "The Chase Manhattan Bank, Escrow Agent
for Lockhart Caribbean Corporation", and along with the completed and
signed Subscription Agreement, mail to: Lockhart Caribbean Corporation,
P.O. Box 683, Old Chelsea Station, New York, NY 10113-0955.

Wire Transfer

3. You may have your local financial institution wire the funds to The Chase
Manhattan Bank Escrow Agent for Lockhart Caribbean Corporation, with the
appropriate wire transfer instructions. You must first complete and sign
the Subscription Agreement, and then either mail it to Lockhart Caribbean
Corporation, P.O. Box 683, Old Chelsea Station, New York, NY 10113-0955 or
send a copy by facsimile to the Company at (340) 776-1940. Once we have
received and approved the Subscription Agreement we will contact you and
provide the wire transfer instructions.

Subscription Agreement

S-2

<PAGE>

LOCKHART CARIBBEAN CORPORATION

SUBSCRIPTION AGREEMENT

The undersigned hereby subscribes for and offers to purchase from Lockhart
Caribbean Corporation, a U.S. Virgin Islands corporation (the "Company"), the
number of Units, consisting of one share of the Company's Class A Common Stock
and a Warrant to purchase one-tenth of one share of Class A Common Stock
exercisable for a period of five years beginning one year from the date of the
Prospectus, indicated below at the price of $6.50 per Unit, upon the terms and
conditions set forth in the Prospectus dated February 4, 1998 (the
"Prospectus").

In connection with this subscription, the undersigned represents and
warrants to the Company that:

1. A copy of the Prospectus has been delivered to the undersigned.

2. The state of residence indicated below is the undersigned's true state
of legal residence. (Non-United States residents should indicate their
country of residence.)

3. If the undersigned is a resident of the State of Ohio, such individual
has a net worth, exclusive of home, home furnishings and automobiles,
of $150,000, or a net worth, exclusive of home, home furnishings and
automobiles, of $45,000 and $45,000 of annual income.

The acceptance of this subscription shall be evidenced by the delivery to
the undersigned of a written confirmation of sale, including a copy of the
Prospectus, as amended or supplemented. Acceptance and deposit by The Chase
Manhattan Bank (the "Escrow Agent") of payment for the subscribed Units shall
not constitute acceptance of this subscription. The Escrow Agent will refund,
with interest, any payments so made if this subscription is not accepted.

BY EXECUTING THIS AGREEMENT, THE UNDERSIGNED DOES NOT
WAIVE ANY RIGHTS UNDER THE FEDERAL SECURITIES LAWS.

If more than one name is listed, please circle one of the following:

TEN COM --as tenants in common UNIF GIFT MIN ACT--____ Custodian_______
(Cust) (Minor)
TEN ENT --as tenants by the entireties under Uniform Gifts to Minors Act_______
(State)

S-3

<PAGE>

JT TEN --as joint tenants with right
of survivorship and not as
tenants in common UNIF TRAN MIN ACT--____ Custodian_______
(Cust) (Minor)
under Uniform Transfer to Minors Act____
(State)

- --------------------------------- --------------------------------------------
Number of Units Print Name(s) in which stock is to be issued

$________________________________ Mailing address (Print):
Total purchase price (No. of Units X $6.50)
--------------------------------------------

- --------------------------------- --------------------------------------------
*Taxpayer identification number(s)
or Social Security Number(s) --------------------------------------------

State of residence (country if
non-United States resident) --------------------------------------------

Telephone Nos.:_______________________

Daytime:______________________________

Evening:______________________________

Fax No.:______________________________

Dated: _______________________1998
--------------------------------------------
Signature(s)**

*By executing this Subscription Agreement, the subscriber certifies that:

1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), and

2. I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service (IRS) that I am subject to backup withholding as a result of
failure to report all interest or dividends, or (c) the IRS has notified me
that I am no longer subject to backup withholding.

Certification Instructions. You must cross out Item 2 above if you have been
notified by the IRS that you are currently subject to backup withholding because
you have failed to report all interest and dividends on your tax return.

**If this Subscription Agreement is delivered by an agent of the potential
shareholder, such potential shareholders's signature must be Medallion
Guaranteed by a participant in an approved securities transfer agent Medallion
program.

Payment in full must accompany this completed Subscription Agreement. Checks or
money orders in the amount of the full subscription price must be payable in
U.S. dollars to "The Chase Manhattan Bank, Escrow Agent for Lockhart Caribbean
Corporation." Completed Subscription Agreements and payments must reach the Bank
on or before February 4, 1999. Send or deliver this Subscription Agreement to
Lockhart Caribbean Corporation, P.O. Box 683, Old Chelsea Station, New York, NY
10113-0955

Subscription payments may also be transmitted to the Escrow Agent by bank wire
or fed funds transfer. Subscribers who prefer to pay by wire transfer should (1)
check the following box / /, (2) provide the following information concerning
the financial institution that will wire the funds: Name of Financial
Institution:___________, ABA#______________, and (3) mail a completed
subscription agreement to Lockhart Caribbean Corporation, P.O. Box 683, Old
Chelsea Station, New York, NY 10113-1095 or send a completed Subscription
Agreement by facsimile to the Company at (340) 776-1940. The Company will
provide complete wire transfer instructions to the subscriber upon approval of
the Subscription Agreement.

S-4

<PAGE>

Addendum A

[Logo]

President's Welcome

Dear Visitor:

On behalf of the entire LCC team, I welcome you to Lockhart Caribbean
Corporation's Electronic Public Offering (EPO) website. Here, investors may join
LCC as it begins its second century of progress and development in the Caribbean
region. You may view and download LCC's Prospectus and receive instructions
about how to purchase LCC units by completing LCC's Subscription Agreement.

Lockhart is the largest owner of shopping centers in the U.S. Virgin Islands.
LCC currently owns and operates seven shopping centers, is actively planning or
developing seven more projects, has leased an aggregate of seven acres of
undeveloped commercial property for development by others (including tenants of
a commercial business park) under long-term ground leases, and has an inventory
of approximately 415 acres of undeveloped land zoned for residential development
of varying densities.

Building upon this solid foundation, Lockhart has embarked upon a
diversification into the financial services industry. Lockhart's senior
management recognized that both the resident and tourist markets for financial
services are underserved. To fill this need, LCC plans to acquire Premium
Finance Company of the V.I., Inc. and intends to grow its business to provide
select financial services throughout the Caribbean.

An investment in LCC is not without risks. You should carefully review the
section captioned "Risk Factors", which begins on page 12 of the Prospectus.
These risks include:

o Historical consolidated net losses.
o Concentration of properties in the U.S. Virgin Islands.
o No limit on indebtedness in Lockhart organizational documents.
o Real estate investment and property management risks, such as the
need to renew leases or relet space upon lease expiration.
o Certain losses may exceed insurance coverage.
o There is currently no public market for the Class A Common Stock.

Lockhart's EPO is yet another example of its commitment to remain at the
vanguard of business and finance. Capital raised from its Electronic Public
Offering will be used to fund Lockhart's pending financial services acquisition
and reduce the Company's debt.

Please follow the step-by-step instructions provided to review LCC's Prospectus
and learn how to make an investment in what we believe is one of the most
exciting companies in the Caribbean.

Sincerely,
John P. deJongh, Jr.
President
Lockhart Caribbean Corporation

A-1

<PAGE>

Addendum B

General Instructions

Purchasing Lockhart Caribbean Corporation's Units is easy. Simply follow these
step-by-step instructions.

If You Have Questions At Any Time

If, at any time, you have any questions or problems, you may return to these
General Instructions.

If you have trouble downloading the EDGAR version of the Prospectus, or locating
information on our Web Site, please contact our Web Site Consultant, EPO Capital
Corporation, at: [email protected] by simply clicking here:
{{e-mail Epo Capital}}.
----------------------

If you have questions concerning the process through which Units may be
purchased, please contact our main office. Our telephone number is (340)
776-1900. Our fax number is (340) 776-1940. Our mail address is P.O. Box 7020,
St. Thomas, VI 00801. You may send us an email message by simply clicking here:
{{e-mail Lockhart}}.

STEP 1: Review Lockhart's Prospectus

First, visit the section entitled "Prospectus."

Here you will find two electronic versions of our prospectus: (1) the text-only
or "EDGAR" version, which may be downloaded to your computer and/or printed out
on your printer; and (2) the interactive or "electronic" version, which contains
a number of features (such as internal links, photographs and maps) that we hope
will help you to gain a thorough understanding of our company. A printed copy of
the prospectus may be obtained without charge by calling or emailing our main
office.

Our offering is made only through the Prospectus. Please read it carefully
before you invest.

STEP 2: Select Method of Investment

Next, visit the area entitled "How to Invest." You will find complete
instructions about how to purchase Unit. After having selected a purchasing
method, you will be transported to the Company's Subscription Agreement.

STEP 3: Complete Subscription Agreement

If you decide that you would like to make an investment in our company, you may
fill out Lockhart's Subscription Agreement, following the detailed instructions
provided.

Before you may fill out the Subscription Agreement, you will be asked to
indicate your state of residence. The Company's offering is currently open to
residents of California, Colorado, Connecticut, Delaware, Georgia, Hawaii,
Indiana, Nevada, New Mexico, New York, Ohio, Rhode Island, South Carolina,
Virginia, the District of Columbia, Guam, Puerto Rico and the U.S. Virgin
Islands. If you are not a resident of one of the foregoing jurisdictions, you
are still welcome to browse through our Prospectus and to let us know if you
might be interested in investing in our company. If there is sufficient interest
from potential investors in your state, we may decide to go through the process
necessary for us to be able to make our offering to you. In addition, the
Company may offer and sell the Units on a limited basis in one or more such
states where an exemption from registration or qualification in such state is
available.

A-2

<PAGE>

Addendum C

Map of the U.S. Virgin Islands, St. Thomas, St. Johns and St. Croix.

A-3

<PAGE>

Addendum D -- Drakes Passage Shopping Mall

Photograph of the interior hallway at Drakes Passage.

Photograph of Drakes Passage from Trompeter Gade.

Aerial photograph of Drakes Passage.

Floor Plan of the ground floor of Drakes Passage.

Floor Plan of the second floor of Drakes Passage.

Artist's drawing of the island of St. Thomas indicating the location of each of
the Company's shopping centers.

Photograph of the exterior of Drakes Passage showing three shops on the Main
Street side of the shopping center.

Map of downtown Charlotte Amalie showing major streets and indicating the
location of certain government buildings and landmarks as well as Drakes Passage
and Grand Hotel.

A-4

<PAGE>

Addendum E -- Fort Mylner Properties

Photograph of BPPR branch at Fort Mylner Commercial Center.

Photograph of the exterior of Fort Mylner Shopping Center.

Map of the immediate area surrounding the Fort Mylner properties showing
existing and proposed roadways and the location of Fort Mylner Commercial
Center, Fort Mylner Shopping Center, a stand-alone KFC restaurant, a vacant
restaurant pad site and parking spaces.

Artist's drawing of the island of St. Thomas indicating the location of each of
the Company's shopping centers.

Photograph of the exterior of Fort Mylner Commercial Center.

A-5

<PAGE>

Addendum F -- The Grand Hotel Court

Photograph of the second floor gallery at Grand Hotel.

Drawing of courtyard elevation at Grand Hotel.

Drawing of the western and eastern elevations at Grand Hotel.

Drawing of the southern elevation at Grand Hotel.

Drawing of the northern elevation of Grand Hotel.

Aerial photograph of Grand Hotel.

Floor Plan of the first floor at Grand Hotel.

Floor Plan of the second floor at Grand Hotel.

Artist's rendering of Grand Hotel from above, showing each of the four buildings
and identifying the roadways around the complex.

Artist's drawing of the island of St. Thomas indicating the location of each of
the Company's shopping centers.

Two photographs of the exterior of Grand Hotel taken from different angles and
vantage points.

Photograph from the second floor of Grand Hotel looking down into the interior
courtyard.

Map of downtown Charlotte Amalie showing major streets and indicating the
location of certain government buildings and landmarks as well as Drakes Passage
and Grand Hotel.

A-6

<PAGE>

Addendum G -- Lockhart Gardens Shopping Center

Photograph of K-Mart location at Lockhart Gardens.

Photograph of Lockhart Gardens.

Aerial photograph of Lockhart Gardens prior to Hurricane Marilyn.

Map identifying the roadways surrounding Lockhart Gardens and showing the layout
of the center, including parking spaces, and indicating the existing portion of
Lockhart Gardens and that portion subject to future development.

Artist's rendering of Lockhart Gardens following Phase II development.

Artist's drawing of the island of St. Thomas indicating the location of each of
the Company's shopping centers.

Photograph of the area surrounding Lockhart Gardens showing the shopping center
in the center of the picture and the ocean in the background.

Photograph of Foot Locker store at Lockhart Gardens.

A-7

<PAGE>

Addendum H -- Orange Grove Shopping Center

Photograph of the exterior of Orange Grove.

Aerial photograph of Orange Grove.

Map of the Orange Grove showing the location of the main shopping plaza and
office building, pad sites occupied by a KFC restaurant and BPPR, and parking
spaces. The main roadway passing in front of Orange Grove is also identified.

Artist's drawing of the island of St. Croix indicating the location of Orange
Grove.

Photograph of the Orange Grove showing the main shopping plaza and office
building and the KFC restaurant.

A-8

<PAGE>

Addendum I -- Red Hook Plaza

Photograph of the Exterior of the Plaza.

Two maps of the Plaza show the location of the shopping center and the parking
spaces. One map shows the floor plan layout of the ground level and identifies
the roadway passing in front of the Plaza, and the second map shows the layout
of the second level.

Artist's drawing of the island of St. Thomas indicating the location of each of
the Company's shopping centers.

A-9

<PAGE>

Addendum J -- Sugar Estate Park

Photograph looking down the main road in the Park with the self-storage facility
on the right-hand side of the road and the corporate office and distribution
center for a local retail operation on the left.

Aerial photograph of the Park.

Artist's rendering of the existing and planned buildings at the Park.

Artist's drawing of the island of St. Thomas indicating the location of the Park
and the Cinema One Building.

Photograph of building supply store at the Park.

Photograph of electrical supply outlet at the Park.

Photograph of the self-storage facility at the Park.

Photograph of corporate office and distribution center of a local retail
operation at the Park.

A-10

<PAGE>

Addendum K -- Cinema One Building

Photograph of the entrance to Cinema One theaters.

Map showing the Cinema One Building in relation to Charlotte Amalie High School,
Lockhart Elementary School, Dr. Roy L. Schneider Hospital, a post office and
Lockhart Gardens. Area roadways are shown but not identified.

Artist's drawing of the island of St. Thomas indicating the location of the Park
and the Cinema One Building.

A-11

<PAGE>

Addendum L -- Sugar Estate Commercial Centre

Aerial photograph of the Park with the property line for the Sugar Estate
Commercial Centre drawn on the picture.

Artist's rendering of the building layout and parking area for Sugar Estate
Commercial Centre.

Drawing of Sugar Estate Commercial Centre in relation to existing and proposed
buildings in the Park.

Artist's drawing of the island of St. Thomas indicating the location of each of
the development properties.

A-12

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Addendum M -- Lockhart Gardens -- Garden Mall

Map showing the layout of Lockhart Gardens, including parking, and highlighting
that portion to be developed as the Garden Mall.

Drawing of the interior perspective of the proposed Garden Mall.

Artist's drawing of the island of St. Thomas indicating the location of each of
the development properties.

A-13

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Addendum N -- Market Square East

Aerial photograph of the land which will developed into Market Square East with
the property line of the development drawn on the picture, and the Phase I area
of development indicated.

Map showing the layout of Market Square East, showing the proposed subdivision
for various phases of development and the situation of structures for Phase I
development.

Artist's rendering of Phase I development from three separate perspectives.

Artist's drawing of the island of St. Thomas indicating the location of each of
the development properties.

A-14

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Addendum O -- Longford Industrial Park

Aerial photograph of the land which will be developed into Longford with the
property line of the development drawn on the picture.

Map showing proposed subdivided parcels and related structures at Longford.

Artist's drawing of the island of St. Thomas indicating the location of each of
the development properties.

A-15

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Addendum P -- Lockhart Gardens -- Phase II

Aerial photograph of Lockhart Gardens prior to Hurricane Marilyn.

Map showing the layout of Lockhart Gardens, including parking, and highlighting
that portion to be reconstructed as part of Phase II development.

Artist's rendering of Lockhart Gardens following Phase II development.

Artist's drawing of the island of St. Thomas indicating the location of each of
the development properties.

A-16

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Addendum Q -- Grand Hotel -- Phase II

Aerial photograph of Grand Hotel.

Floor Plan of the first floor at Grand Hotel following Phase II development.

Floor Plan of the second floor at Grand Hotel following Phase II development.

Artist's rendering of Grand Hotel from above, showing each of the four buildings
and identifying the roadways around the complex.

Artist's rendering of the central atrium of the main building at Grand Hotel.

Artist's drawing of the island of St. Thomas indicating the location of each of
the development properties.

A-17

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Addendum R -- Sugar Estate Plaza

Aerial photograph of the Park with the property line for the Sugar Estate Plaza
drawn on the picture.

Artist's rendering of the building layout and parking area for Sugar Estate
Plaza.

A-18